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Are You Ready For The Next Refi Boom?
by Robert Franco | 2009/03/29 |

The housing market, the mortgage industry, and the title insurance industry have been on the decline for some time now.  There have been steep cuts in personnel as many companies scaled back their operations to meet the shrinking demand.  Now, there is concern that lenders will not have the capacity to handle the volume predicted for 2009.  The title industry may also find itself unprepared for that kind of increase in orders.

If the predictions are correct, that mortgage originations could double this year, will you be ready for it?  Have you thought about how best to take advantage of another big wave of refinancing? 

Source of Title Blog :: is reporting that mortgage originations could double this year, to $3.1 trillion.  This is mostly due to incredibly low mortgage rates (4.85%) and a further loosening of the standards at Fannie Mae and Freddie Mac.  Ironically, it was the artificially low interest rates and poor underwriting standards that got us into this debacle, yet... here we go again.

The Treasury Department has announced its Home Affordable Refinance and Home Affordable Modification programs.  These programs will allow loan-to-value ratios in excess of 80% and in some cases an appraisal will not even be required.

The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.

The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program.

This should create another temporary boom for the industry.  And, it could even be argued that this is a necessary step to getting us out of the current recession.   But, much like the past decade, it is all artificial and eventually we will have to pay the price.  What will we do then?

In the long term, we will see another recession in the housing market and mortgages will be more expensive and harder to come by.  Helping struggling homeowners refinance now might be good to provide some much needed stability and slow the foreclosure rate.  However, people will still owe more than their homes are worth and they won't be able to sell them... home sales will decline further.  And, interest rates must go back up and until we return to a normal cycle where the market dictates the rates, our future remains uncertain.

People are already predicting that our budget problems will lead us into another period of higher inflation and interest rates.

The President’s budget returns us to the economic policies of the Jimmy Carter era which resulted in high recession rates, high inflation, high interest rates and a stagnant stock market. We didn’t get enough explanation tonight on why after an $800 billion stimulus bill, the President’s budget increases spending by $1 trillion over ten years, includes an additional $250 billion placeholder for another bailout even while current bailouts spiral out of control, and calls for pay-as-you-go (PAYGO) laws while astonishingly violating that rule by $3.4 trillion.

Once these government programs expire (we can't afford them indefinitely), we will see mortgage rates rise back to a normal level - and, the lower we force them now, the longer it will take to get there.  That will mean some very slow times ahead for the title insurance industry.  If we do see the high inflation from the Carter era again, it will be devastating.

It does appear, however, that in the interim, we have all been given a second chance.  These programs have provided another lifeline to those of us in the real estate industry.  We should all keep in mind, this time around, that it is all temporary.  So, here is my advice - be cautious.

We have all heard the expression, "if you aren't growing, you are dying."  The problems is that growing your business shifts potential savings to expansion costs.  Because we know that its all temporary, we should be careful how much we grow to meet the demand expected this year.  Instead, save some money for the next down-cycle.  You will be glad you did.

Focus on profitability, not market share.  It doesn't do you any good to fight for market share if you have to cut your profit margins to the point that you cannot save money and build a rainy-day fund. 

Do not be afraid to turn down work.  Before you take that next step to grow larger and take on more orders, consider whether you will actually increase profits by doing so.  How long will it take you to make back your investment on hiring and training and do you really think that long-term potential exists?  And, also consider how you will handle down-sizing once the wave has crashed.  Basically, it is most likely more profitable to work at full capacity and turn down orders than to gear up for a short-term fluctuation in demand.

Remember what lessons we have learned over the past couple of years.  A volume discount doesn't do us any good when the volume disappears.  Maintain your prices, or consider raising them.  Remember you will need the money you make today, to live on tomorrow.

This is your business, your livelihood.  Do not let clients dictate terms that are not in your best long-term interest.  Stick to your guns and think about tomorrow.  One day we will all have to pay the piper - will you be able to cover the tab?

Robert A. Franco



Categories: Mortgage Industry, Title Industry

1539 words | 3712 views | 3 comments | log in or register to post a comment


Wise advice. Many abstract companies in the NYC area (along with resarch companies) have had massive layoffs due to the downturn. I have not yet seen the mortgage refinancing show up as additional work yet.

by Michael Majkowski | 2009/03/30 | log in or register to post a reply

Liebig's Law of the Minimum for Real Estate

Average rates in this area are now hovering or below 5%.  I know agents who are already turning away business because they don't want to spend the time or money hiring and training someone they will need to layoff in six months.  There is going to be an unbelievable bottleneck in the coming refinance boom because there are substantial sectors of the real estate industry that do not have enough people to cope with high volumes anymore and who are not going to adjust for it either.

This boom is going to dwarf anything we've seen before.  This is going to be the equivalent of everyone who ever refinanced in the past five years (or more) trying to refinance in the next six months.  The only question is which industry will have the biggest bottleneck that will slow everyone else down.

by David Jenkins | 2009/03/31 | log in or register to post a reply

How does one re-fi with little or no equity?

I have asked the question about re-fi's swamping local companies in the businesses and they are not seeing what the media is reporting- nothing or very little so far-maybe in some markets it is- but not the east coast I work in. Again- how can a property owner re-fi when their equity has all but been depleted with the drastic assessment reductions and property values across the country that have occurred?
Until property values get back to pre 2005-2006 levels, there is little hope for any kind of "boom" to occur anytime soon.
The only area of real estate that is booming right now are foreclosures, and they are just dragging down the neighborhoods they occur in, and leaving distraught  people scrambling for alternatives to their dreams
Just my view of things at this time- but more than willing to accept alternatives and a brighter outlook also-something we have long left in the rear view mirror.

Steve Meinecke

by STEVE MEINECKE | 2009/03/31 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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