Hedging loan run-off can only go so far. The best way to block and tackle against a refinance boom is for a servicer to hit the airwaves and local business section with advertisements about the wonders of refinancing. Direct mail and phone calls work nicely too.
And let’s face it – some residential servicers are good at refinancing their own portfolios and stealing business from others. The old Countrywide franchise under Angelo Mozilo comes to mind as a firm that was quite good at the refi game, while others are not.
Mozilo, despite his shortcomings in the last two years of his career, was a feared competitor who spent a ton of money advertising to win the refinance game in almost any market Countrywide originated loans in.
It should be noted that today’s refinance market is vastly different from those of the past. With home values down 25% to 50% in once red-hot markets and the national delinquency rate at 10% and headed higher, refinances are no longer an easy way to make money. It’s all about home equity, isn’t it? A consumer either has it or not.
Complicating the whole value equation is the issue of a regulation called Home Valuation Code of Conduct, which has thrown the appraisal industry into disarray with lenders and realtors complaining about the poor quality of work being done under the regulation.
The regulation has supposedly created an appraisal system where the appraiser charging the cheapest amount of money for his work wins the bid, despite the quality of his work. But that’s a column for a different day.
Also complicating the refi picture is the poor jobs market. Consumers – no matter how much equity they have – cannot refinance without employment. The good news is that the economy is finally creating jobs, especially manufacturing positions, at a healthy clip.
But the newly employed aren’t running out and buying homes, and that’s a problem. Their credit has been damaged, they have little in the way of funds for a downpayment and they’re scared to buy now, thinking that home values aren’t finished correcting.
Also, some workers probably realise that manufacturing and the export of goods will be hurt if the PIIGS get sicker. Crazy world, isn’t it? For now, mortgage professionals in the US are sleeping well, knowing that low rates are their friend. At least, I think they are.