Weitz Law Firm - 520 Kirkland Way, Ste 103 - Kirkland, WA - (425) 889-9300

Tuesday, September 10, 2013

Increase in interest rates begin to hurt market

AP - A rise in interest rates is slamming homeowners' demand for mortgages, prompting large and midsize banks to cut jobs and warn investors of declining profitability in the home-loan business.
SW- Exactly as we predicted…. See past article here.

Wells Fargo, the nation's largest mortgage company by loan value, on Monday told investors at a conference that it expects mortgage originations to drop nearly 30% in the third quarter to roughly $80 billion, down from $112 billion in the second quarter.

On Aug. 29, Bank of America Corp., notified about 2,100 employees that they were being let go largely due to a decline in refinancing activity, said a bank spokesman. Mortgage originations include loans for home purchases and refinancings.

Rates are rising on investor worries the Federal Reserve soon will take steps toward reducing an $85-billion-a-month bond-buying program designed to help stimulate the economy.

The average rate on a 30-year fixed-rate mortgage stood at 4.73% for the week ended Aug. 30, up from 3.60% at the end of April, according to the Mortgage Bankers Association.

SW- As discussed, that is a HUGE drop in purchasing power. For example, it would cost over $5000/ your more for a $500,000 mortgage.

All told, Mr. Miller expects lenders to originate $1.654 trillion of mortgages this year, down from $1.75 trillion in 2012. The decline is expected to bottom at $1.46 trillion in 2014 before rising again in 2015, according to FBR estimates.

The slowdown is the latest hurdle for the banking industry, which already is grappling with tepid loan demand from corporate borrowers and higher compliance costs as regulators crack down on a broad swath of banking practices.
The warnings come even though the U.S. housing market is posting its strongest year-over-year gains since the tail end of the real-estate boom in 2006. Many lenders had ramped up their mortgage businesses in the past two years to take advantage of a surge in refinancing activity that was spurred by historically low rates.

Ultimately, big banks should benefit as they will be able to raise interest rates on new loans. That will widen the gap between their cost of borrowing and the income they earn from lending. But that won't happen for several months, as banks work through pending applications and loans.
"We are bullish on the long term, but the short term is going to be rocky," said Mr. Miller.

San Francisco-based Wells Fargo, which financed nearly one in four U.S. mortgages in the second quarter, has already cut 3,000 jobs in the mortgage business since July. The reductions represent roughly 1% of the bank's total workforce.
At J.P. Morgan, mortgage originations are on pace to drop as much as 40% from the first half of 2013, said Marianne Lake, J.P. Morgan's chief financial officer, at the conference. She attributed the decline to a drop in refinancings. She said refinance applications are down more than 60% from the peak in May 2013.

Mortgage-banking income dropped 3% at Wells Fargo and 14% at J.P. Morgan in the second quarter from a year earlier. At Bank of America, the decline was 22% from the year-ago period.
The mortgage slump also is taking a toll on smaller lenders, some of which pumped up their home-loan business to help offset a slowdown in commercial lending.

The slowdown is perplexing to industry veterans like Gerald Lipkin, who has been chief executive of New Jersey lender Valley National Bancorp since 1989.
SW- As discussed, this is a very large issue that few are talking about. We believe it will take a toll in the RE Market, and is reflected with recent King County numbers with Inventory of properties for sale increasing and sales decreasing.
For more information, consider contacting a Kirkland Real Estate Broker
Rylee Park Properties 
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(206) 306-4034


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