Sales of first mortgages jumped in 2014
The frigid weather at the start of the year delayed the mortgage season in Michigan.
Dodd-Frank and the polar vortex both bedeviled the mortgage industry in Michigan in early 2014, but home buying has definitely picked up and is predicted to continue through 2015.
Andrew Baker, incoming 2015 president of the Michigan Mortgage Lenders Association, said mortgage lending was “pretty stable” in 2014, although the long and cold winter during the first few months “kept things pretty slow. There wasn’t a lot of purchase activity because people weren’t getting out and looking at homes.”
But since then, “definitely, over the entire state, we’ve seen a large pickup in purchase activity again,” said Baker, and he emphasized that includes the city of Detroit.
In West Michigan in particular, he said, there is now a lot of new home construction, driving construction loans. He added it is not at the level of the home-building boom before the recession, but there is definitely an increase that shows “people are more confident, moving around again, buying houses.”
The MMLA has about 1,800 members, representing 226 companies across the state. Baker, a mortgage lender with Chemical Bank in the Kentwood branch, said the majority of the impact so far from the Dodd-Frank Act finally took effect early this year, and now requires banks, credit unions and other mortgage lenders to document in detail that a mortgage applicant really does have the ability to repay the loan.
Dodd-Frank, officially known as the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, became law July 21, 2010, and has been fought by major players in the financial industry since then.
Baker said what the mortgage industry is doing now because of Dodd-Frank “is really a lot of what we have done before, but now it’s very specific,” especially regarding the qualifications of mortgage applicants.
The refinancing market has slowed down, although it was the bulk of mortgage activity for years following the financial crisis caused by the meltdown of the mortgage-backed securities, and the extreme drop in home values and near stall of the home construction industry. The historic drop in interest rates since then has fueled the mortgage refinance business, but Baker indicates the drop now in refinancing is due to a “slight bump in (interest) rates.” He also notes “a lot of people had already taken advantage of those (low interest) rates” prior to 2014.
Baker mentioned the Obama administration’s HARP program – Home Affordable Refinance Program – which is designed to assist homeowners in refinancing their homes, particularly if they are upside down on their existing mortgage but still struggling to pay it. He said statistics collected from HARP indicate “there is still, nationwide, a million people or more who haven’t taken advantage of that program for one reason or another.”
When home values plummeted around 2008, many owners changed their minds about selling because appraisals came in so low.
“Now we are definitely seeing appraisals come back at value or higher than purchase price,” said Baker, even though part of the government crackdown recently was on the appraisal industry.
When asked who the largest mortgage maker in Michigan is, Baker mentioned Lake Michigan Credit Union first. It is headquartered in Grand Rapids but now covers much of the Lower Peninsula, having moved into southeast Michigan at the start of 2014.
Eric Burgoon, senior vice president of mortgage lending at LMCU, said the mortgage focus there is “on the new purchase business, which is mostly what it’s been lately.” He said he believes LMCU’s interest rates and fees are lowest, which drives its mortgage business. When he spoke to the Business Journal last week, 30-year fixed mortgages were at 3.875 percent, while a 15-year fixed was about 3.75.
Burgoon, who has previously worked in mortgage lending at large banks, said LMCU may be unique in that it holds on to most of its mortgages and services them itself — about 43,000 in its Grand Rapids operations. Most lenders sell the mortgages they originate, mainly to Fannie Mae and Freddy Mac.
According to another LMCU spokesperson, Don Bratt, the credit union originated 4,790 home purchase mortgages so far in 2014, with a total value of $862.5 million. It also refinanced 1,198 mortgages, with a value of $2.5.4 million.
Bratt said LMCU is No. 1 in Michigan in total number of first mortgages and their value. He said Quicken Loans is No. 2, followed by Fifth Third Bank and then Chase. The data was collected by Marketrac, which reports on mortgages filed in the 37 largest counties in Michigan.
“The biggest thing affecting us now is increasing regulation,” said Burgoon. Increased government regulation makes the mortgage lending process “a little more cumbersome.”
He said he is sure Fifth Third is the No. 2 mortgage lender in Kent County.
According to a Marketrac report on Kent, Muskegon and Ottawa counties for year-to-date 2014, Fifth Third has sold less than half as many mortgages as LMCU.
John Zimmerman, senior vice president at Fifth Third, noted his bank has “been at this such a long time” and has been a recognized leader in the mortgage business.
He said Fifth Third is not affected at all by the increased government regulations.
When asked what might be holding down the number of mortgages being made, he said, “We think it’s really because of a lack of inventory out there. There are a lot of qualified buyers that just can’t find a home.
“As soon as a home is for sale, it’s gone – and a lot of times they’re gone before the for-sale sign is even stuck in the ground,” he added.
Huntington Bank has seen a lot of home buying activity this year, according to Jay Plum, executive vice president in the home lending department. Huntington does not reveal the number of mortgages it makes, although the Marketrac data for first mortgages in Kent/Ottawa/Muskegon this year indicates Huntington has done 972, compared to Fifth Third’s 1,481.
Plum said the “brutally difficult winter” of 2013/2014 extended into the spring, and made it a slow start to the purchase year. “Then, once purchasers did get going, there were some inventory problems because demand had been so pent up,” he said.
The new government regulations were also an adjustment period in the first quarter, he added.
According to Marketrac data on Kent/Ottawa/Muskegon counties this year, the rank of first mortgage makers puts Huntington in third place, followed by Quicken Loans, Chemical Bank, Northpointe Bank, Amerifirst Financial, Macatawa Bank, Founders Bank and JP Morgan Chase.
There are actually well over 100 financial organizations originating first mortgages in the three counties, with many of those located in other parts of the United States.
Rob Atwell, sales manager for Macatawa Bank mortgages, said 2014 has been different, compared to last year and the years before. The re-fi business slowed down “significantly,” he said, so it is basically a home purchase market now, and new construction has also been strong.
“Stringent qualifications” for mortgage applicants set by Fannie Mae and Freddie Mac has made the process much more difficult than it was 10 years ago, he said, but some of the new rules have come directly from the federal government, too.
One big issue, however, is “the fact that in West Michigan, the (home) inventory has been light,” said Atwell, adding it has definitely been a seller’s market.
Appraisals are sometimes an issue when a home price that has been agreed upon by the parties comes in higher than the appraised value. Atwell said in a seller’s market, prices can increase faster than the comparable sales used in making appraisals, and sometimes the lower appraisal comes in because there haven’t been enough prior sales to support the agreed-upon value.
Macatawa, which is headquartered in Holland, has “definitely made a conscious effort to increase our mortgage business,” according to Atwell.