In the article So Many Lenders, So Few Takers [Businessweek], the article explores the impact of the lower number of sales on the lending industry.
One of the beneficiaries of the housing boom has been the lending industry that serves it. The industry has focused on efficiency and expansion through consolidation and automation. All of this has come with a price. A byproduct of all this has been the marginalization of most appraisers to become form fillers discouraging competent appraisers to stay in the business. I have long ranted about this in my other blog Soapbox.
Now that the machine is built, will the mortgage applications continue to roll in?
It doesn’t look like it. The Mortgage Bankers Association projects an 18.6% decline in application volume in 2006. Its a double wammy. The slight upward trend of mortgage rates in the latter half of 2005 and the fact that rates have remained so low for so long means that the refi boom has already run its course. The number of sales is declining and is expected to drop in 2006.
We saw the same thing in the late 1989 drop in purchase volume and the post-1992/1993 refi boom. Lenders who built up staff and departments, pared back on overhead and eliminated non-revenue departments, and shifted emphasis to wholesale lending (mortgage brokers). This was seen as the panacea to eliminate the overhead burden, but lenders gave up certain elements of control over quality which remains in place today.
It is to be expected that there will be more intense competition among lenders for a smaller piece of the pie and more pressure placed on the valuations, especially related to refinance assignments, in order to make the deals work. Borrowers still have expectations of high housing price increases on par with last year. On the bright side, I expect to see a reduction of certain exotic mortgages as consumer awareness of the pitfalls increases.