We find ourselves in the middle of one of the greatest wealth transfer periods of all time. Those with wealth must decide whether they want to make transfers, and if they do, they must decide how much, to whom, when and in what structure?
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The top seven mortgage lenders in the region produced nearly $1 billion in loan dollar volume in 2012, according to the Business Report’s latest list. It is important to note that this figure does not include mortgage giant Wells Fargo, which has topped our list for years, but its numbers weren’t available in time for publication.
In 2011, the same seven lenders produced less than $550 million in loan dollars.
This can be attributed in part to an increase in home buying, as more and more people find themselves employed again and able to purchase a home. Low interest rates are encouraging folks to buy homes as well, not to mention the fact that in some situations, it is cheaper to buy a home than to rent one.
As of Dec. 27, the interest rate on a 30-year, fixed-rate mortgage was 3.35 percent, compared with a 3.95 percent rate in the same week the year before.
Some parts of the country are mirroring Northern Colorado’s data. In mid-December, the St. Louis Business Journal reported that loan volume there was the highest it had been in four years.
Other parts of the country have not been so fortunate. The Mortgage Bankers Association takes stock of national mortgage application numbers every week, with the most recent report showing a 21.6 percent decrease in the last two weeks of 2012 when compared with the two weeks prior.
New loan origination undoubtedly plays a part in the increases we’re seeing locally, but it’s refinancing that is the real mortgage lending powerhouse.
Every single one of the mortgage lenders that reported numbers regarding refinancing at their institutions gave a higher percentage of refinancings than new loans. Combined, the five institutions that provided the information had, on average, 62 percent of their loans come from refinancings.
Some homeowners, as I wrote last fall, are even refinancing their homes over and over again, trying to take advantage of the ever-decreasing interest rates. The trend went on throughout 2012 and in many cases allowed homeowners to keep more of their disposable income.
In the last two weeks of 2012, of the total applications submitted for mortgages nationwide, 82 percent of them were for refinancings, according to the Mortgage Bankers Association.
Refinancing is at its highest level since January 2009, according to the association, which is good news for mortgage lenders, homeowners, real estate agents and basically the economy as a whole.
The group expects that the refinancing trend will spill over into at least the first half of 2013, pushing mortgage originations to $1.7 trillion across the country.
But don’t pop the champagne just yet.
After the second quarter, interest rates are expected to increase, causing a dropoff in mortgages, both new and refinancings, in the second half of the year.
“We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refinancings extending through the first half of the year followed by a rapid drop-off in the second half,´ said Jay Brinkman, chief economist for the MBA.
One important thing to note is the first half of Brinkman’s statement. The MBA expected 2012 to be a year front-loaded with loans, with a significant dropoff in the second two quarters. As we now know, 2012 defied expectations and refinancing levels remained high all through the year.
We also know that interest rates were historically low for all of 2012, and right now, we don’t know that will be the case in 2013.
The powers that be haven’t quite decided when to end the third round of qualitative easing, or QE3 as it is often called. Or, in other words: the thing keeping interest rates so low.
The Federal Reserve has said QE3 will continue until there is “substantial improvement” in the labor market, but didn’t completely define what “substantial improvement” might look like, according to American Banker.
The publication reported that “several” members of the Fed “thought that it would probably be appropriate to slow or to stop (QE3) well before the end of 2013, citing concerns about financial stability.”
In short, an early end to QE3 would most likely result in increases in interest rates, which may mean the end of the refinancing heyday, and from what I hear, many Northern Colorado lenders, residential and commercial alike, are waiting with baited breath.
Molly Armbrister covers real estate for the Business Report. She can be reached at 970- 232-3139, at email@example.com or at twitter.com/MArmbristerNCBR.