Harinder Johar rode the mortgage- refinancing wave for all it would yield in 2012.
As a result, Boston-based Johar
closed 1,288 loans that totaled at
$403.9 million, ranking him second
per dollar volume on Scotsman Guide’s
Top Originators 2012 list. Refinance
deals made about 85 percent of Johar’s
2012 volume. Despite that outstanding production, Johar was just one of
many originators across the nation who
seized on low interest rates and federal
programs, which encouraged homeowners to refinance.
This past year, the refinance market
did a turn akin to the oil fields drying up
in west Texas, however. “The refinance
market is gone,” says Johar, senior vice
president and branch manager with
Guaranteed Rate Inc.
“It is probably 10 percent of [2013’s
volume]. I would call it pretty much
dead when you were writing probably
35 or 25 refis a month and now you are
The impact of declining refinance transactions has been felt across the board in
mortgage businesses — big and small.
Citing flagging refinance business
among other reasons, major banks cut
thousands of mortgage-related jobs
this past year.
This past August, Wells Fargo & Co.,
the nation’s largest mortgage lender,
said it would eliminate 20 percent
of its mortgage-production staff, cutting roughly 2,300 jobs in three states
over 17 months. The bank cited a 50
percent drop in refinancing applications. Similarly, both Bank of America
and Citigroup Inc. announced cutting
1,200 jobs each this past fall, according
to USA Today.
Going forward, refinances are expected to dwindle further. This past
October, the Mortgage Bankers Association projected refinances to drop from
$1.08 trillion in 2013 to just $463 billion
this year. Along with this drop, total
originations were expected to decline
from $1.7 trillion to $1.2 trillion in the
same time frame.
With this decline, many originators
have expected a challenging year ahead,
and one that is likely to change the
makeup of the market’s players.
“Those challenges will weed out a lot
of originators. So [only] the strong will
survive,” says Shawn Huss, a senior
vice president at First Place Bank.
“We’ll see a lot of originators get out
of the business because they were
focused on refinances only.”
Many mortgage companies have
seen this coming and shifted their
attention to doing deals in an improv-
ing purchase market, however. Ray
Brousseau, executive vice president
of the Mortgage Lending Division at
the Santa Ana, Calif.-based Carrington
Mortgage Services LLC, says Carrington
reacted to the shift to a purchase market
fairly early. This past year, the company
added more jobs and opened three
offices in Jacksonville, Fla., Indianapolis
and Hartford, Conn.
“In the fourth quarter of 2012, we
were about 75 percent refinance and
25 (percent) purchase,” he says. “Fast
forward to the end of the year, we are
about 80 percent purchase, 20 percent
refi. [We] literally flipped the business
Carrington has taken several steps
toward that goal. It aggressively pursued
first-time homebuyers by leveraging
Ginnie Mae and Federal Housing Ad-
ministration programs. Early this past
year, the company introduced incentive
programs to attract borrowers, pledging
to waive fees if the company failed to
close within a promised period, accord-
ing to Brousseau.
“We are still a relatively smaller
firm but our business is growing in
record volumes, and it is with 80 percent of the business being purchase,”
Brousseau says. “The purchase market
is healthy. There is a good opportunity for first-time homebuyers. Although
rates have increased, they are still at
4. 5 [percent or] 4. 6 percent. At the end
of the day, that is a formidable rate,”
Shifting the business focus toward
the purchase market can help mortgage companies mitigate the risk of
fluctuating interest rates, as well.
“When you tilt the business toward
purchase, whether [interest rates] go to
5. 5 percent or even 6 percent, it is not
that relevant. By tilting the business
more toward purchases, you can take
out that risk,” Brousseau says.
Today’s market isn’t all that unusual for
veteran originators, however. Don Kracl,
Zillow’s vice president of mortgage
tools, who started as an originator
nearly 40 years ago, says the new market reminds him of the traditional mortgage market where people hustled to
find clients. Kracl founded the Nebraska-based software company Mortech that
creates tools for the mortgage industry.
Mortech has been purchased by Zillow.
“Everybody knows that the refinance
business has pretty much gone away.
The thing that has frustrated me over
the past few years is that, like a slow
hanging curve ball, everyone should
have seen this coming,” Kracl says.
“[Originators] kept kidding themselves that it wasn’t going to be as bad
as all the pundits said and, for a while,
it wasn’t,” he adds.
Kracl says that with the rise of a pur-
chase market mortgage professionals
need to develop relationships with dif-
ferent market partners including Realtors
and use social media. Mortgage brokers
and originators can’t, however, ap-
proach networking as they did 30 years
ago, Kracl says.
“You go to a real estate office today
and there is nobody in there. They are
all on their cell phones. We would bring
doughnuts to sales meetings and get
[to meet] almost everyone in the office
but there isn’t anyone in the office
now,” he says.
Kracl recommends that mortgage pro-fesionals mine their databases of previous borrowers and try to contact them.
Through social media sites like Facebook,
mortgage brokers and originators can
instantly reach former and prospective
clients and Realtors. They also can use
these platforms to post updates about
interest rates, deals and programs.
“The tools available today are much
better than what we had, which was a
pencil and a legal pad,” he says. But
many originators, in his view, are not
taking advantage of these tools as they
miss opportunities for following up and
maintaining connections with their past
“The attitude is: [Clients] will come
to me and I don’t want to be in their
face. I don’t want to be that aggressive,
[and] I will sit back. And the problem
is that a lot of people are bellyaching
about there is no business,” he says.
Kracl noted that mortgage professionals survived in a climate where
interest rates were much higher. “When
I started, rates were 10 percent. I was
in the business when [the interest rate]
was 20 percent or 18 [percent]. It was
ridiculously high. It is all relative, and
there is still plenty of business out
there,” he says.
Many of today’s originators are aware
that it has become a must to shift their
business-development strategies to
target clients in the purchase market.
For example, Johar says that he’s changed
tactics by meeting with more Realtors
and talking up his ability to close loans.
He still does refinances but only when a
deal walks through the door.
“I have developed a lot more relationships this past year than I ever did before,” Johar says. “I knew the refinance
business was going to slow down one
day, so I changed how I do business.” •
Time to look beyond dribbling refinances
Victor Whitman is an associate editor
of Scotsman Guide. Reach him at
BY VICTOR WHITMAN, ASSOCIATE EDITOR