Scotsman Guide - March 2014 Residential Edition

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 writing three.”

Shifting market

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
around.”
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,” he adds.

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.

No surprise

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 consumers.

“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.” •