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Housing picture is full of ups and downs

Residential lending figures are in for Q1 and it’s not a pretty picture for mortgage bankers of all sizes on this side of the pond. The nation’s four largest funders of home mortgages that account for 60% of all originations saw their production volumes take it on the chin in Q1 as rising rates early in the year dampened refinancing activity.

Of course, when it comes to mortgage banking it’s all relative. The big four of home finance Wells Fargo, Bank of America, JPMorgan Chase, and Citigroup saw originations fall by 35%, 33%, 29% and 35%, respectively, when compared with Q4 2010.

But keep in mind that Q4 2010 was the industry’s best in almost two years with $544bn worth of loans reaching the closing table. When Q1 production is compared with the same period a year ago, the situation looks a lot better.

There’s hope the second half of the year will bring stronger volumes, at least when it comes to purchases

Wells Fargo saw originations increase by 9% with JPMorgan and Citigroup registering gains of 14% and 36% respectively.

Only Bank of America had a decline, with volumes down 14%. All these lenders, except for Wells Fargo, have either exited the broker channel or are in the process of doing so.

Then again the channel is now a fraction of its former self, accounting for less than 10% of all new loans.

Still, home lenders of all sizes usually have a tendency to ramp up hiring when they see even a hint of better market conditions, usually lower rates, and then savagely slash workers when applications tank as they did in the first few months of the year.

Over the past month Wells Fargo and Bank of America combined sent layoff notices to 7,700 full-time mortgage workers.

Both these megabanks claim that few of those let go were employed as loan officers the folks that actually work with consumers to take applications and that the cuts came among processors, underwriters, support staff and in some cases contract workers.

Almost every originator in the nation is anticipating roughly a 25% decline in fundings this year, falling to $1.1trillion from $1.6trillion.

But there’s hope among some firms that the second half of 2011 will bring somewhat stronger volumes, at least when it comes to home purchases.

Of course, the elephant in the room is the fact that refinancings are ebbing significantly. Today refinances account for about 55% of all new applications compared with 75% last year.

It’s anticipated that by the year-end purchase money loans a mortgage used to buy a home, not refinance could account for up to 70% of volume.

And it’s no secret why refinances are slipping. Rates hit rock bottom in the second half of 2010 and most borrowers with good credit have already grabbed a mortgage with an ultra-low rate locked in at a fixed percentage for 30 years. We Americans love our fixed loans.

Lending standards are the tightest they’ve been in two decades, with downpayments north of 5% becoming more common and higher credit scores a must. The result is a smaller pool of borrowers who can get a mortgage.

But there’s some optimism for a revival by the second half, especially with long-term interest rates beginning to swoon again in early May.

“I think that by the middle of the year we’ll see activity pick up,” says Bill Dallas, chief executive officer of Skyline Financial from Agoura Hills in California.

“Employment and home prices are starting to solidify. Look at the all-cash transactions on lender-sold properties that are taking place it used to be 80% of deals, now it’s 40%.”

Skyline is mostly a West Coast lender, with a strong emphasis on California. In years past the Golden State has accounted for 15% to 20% of all mortgages funded in the US.

Dallas says median-priced homes in the state are moving but jumbos are still a challenge. His biggest complaint is one voiced by other lenders appraisals.
“We’re still having trouble getting properties appraised at the right price,” he says.

Skyline is selectively hiring loan officers, but only if they have strong ties to realtors. “If you don’t have purchase money ties you will be in trouble,” Dallas adds.
Jim Dobier, who runs a branch for Sierra Pacific Mortgage in New Mexico, is also hiring.

“We have about four loan officers now,” he says. “We hope to add about six more by the end of the year.”

But he too stresses that it’s all about having realtor ties.

“Realtors are seeing their business pick up,” he says. “We’ve been in that business for years.”

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