Oklahoma mortgage lenders see more manageable levels ahead

Journal Record, The (Oklahoma City), Aug 29, 2003 by Matt Maile

After a year in which commercial and residential mortgage lenders reported near-record levels of business volume, thanks to low interest rates, many are now gearing up for the potential that rising rates could cool the market to a more normal pace of business in the months ahead.

Mortgage bankers say the level of transactions in the loan market should slow down to more manageable levels in the coming year. Interest rates on 30-year fixed-term mortgages, which hit a low of 5.21 percent in June, according to Freddie Mac, have begun to head upward in tandem with rising benchmark Treasury rates.

As recently as the July 31 week, Freddie Mac said the average rate on a 30-year fixed-rate loan was 6.14 percent.

We're seeing an end to, I think, the volumes we've been seeing, said Lynn Tracy, mortgage banker with Bank of Oklahoma. I don't think things are going to slow down tremendously, but I think things are going to be back to the normal level that we would see in the summertime.

By any account, mortgage lending activity in Oklahoma County, as in much of the nation, continued its strong pace in the fiscal year that ended June 30. The number of mortgages certified in Oklahoma County jumped 19.5 percent for the year, said Paula Wells, who processes mortgages for the county.

From July 1, 2002, to June 30, 2003, the county processed 54,158 commercial and residential mortgages, up 19.5 percent from the 45,309 mortgages filed during the same period a year ago. The gain was matched only by the year-ago period, when mortgage filings jumped 25.2 percent between June 2001 and 2002.

It's mind-boggling, Wells said. The amount of business has been outrageous this last year. It seems like everyone in the county has refinanced at least twice in the past year.

Wells said the county does not keep track of what level of business is derived from mortgage refinancing vs. new loan originations. She said, however, that the level of activity appeared to come largely from mortgage refinancing as interest rates continued to drop during the past year.

Beverly Ray, first deputy in the county treasurer's office, said lower interest rates are definitely behind the high level of mortgage filings this year.

A lot of the growth is from a boom in building, she said. But really what has been kicking the numbers up has been the lower interest rates. It's hard to say with these increases in filings how much is from new homes being sold and how much is from refinancing.

Tracy, who handles mortgage lending at Bank of Oklahoma, said she has seen similar gains in refinancing activity.

Of course, the number one thing that has happened here is that the lower interest rates in the first half of the year have caused people to refinance even it they already refinanced or purchased a home this time last year, she said. I have seen some people I just closed on in which this is the third time in a year-and-a-half that they have refinanced, and it has benefited them every time.

When you get into the 30-year rates in the low 5s and the 15-year rates in the low 4s, people were just scrambling.

Bankers said it is not realistic to expect that the low interest rates will exist indefinitely. The economy will improve, setting in motion market factors that will lead to higher interest rates. As optimism in the economy improves, Treasury bond investors tend to sell their bond holdings and move their investments to the stock market, where they can earn a greater return on their investment. The bond sell-off causes bond prices to fall and inversely, raises bond yields. As the benchmark Treasury yields rise, mortgage rates usually follow.

Bankers said they already see signs that mortgage rates are climbing from their midsummer lows.

We've had two years of really, really good interest rates, and this has been one sector of the economy that has boomed when other sectors haven't, Tracy said. We can't expect this to last forever.

Tracy, however, said even if interest rates do rise slightly, the rates will still be attractive to borrowers.

At 6 percent, these are still not bad rates. Looking back on it, I don't think anybody is going to be sorry, even if they refinanced or purchased at 6 percent, she said.

Jim Miller, president of the Oklahoma Mortgage Bankers Association, said interest rates have begun to rise, prompting mortgage refinancing activity to slow from its peak. The focus of loan activity may shift, he said, from refinancings to new mortgage loans.

By year-end, Miller said he expects the number of mortgage originations will come in second in number only to 2002's record pace. Mortgage origination activity, however, should show signs of slowing in the fourth quarter, he said.

We feel like the year is going to be an outstanding year, but just not as good as we thought it would be three months ago, he said. Refinancings will drop off but we don't expect new loans to drop off that much.

Nationally, the Mortgage Bankers Association of America said it anticipates 30-year fixed-rate mortgage rates on average to begin climbing over the next three years. The group projects the average 30- year loan rate in 2003 to be 5.7 percent. That will climb to 5.9 percent in 2004 and 6.5 percent in 2005.