New residential mortgages continue their decline.

Local lending volume has fallen 26% so far in 1992

Even with interest rates at their lowest levels in decades, the volume of new residential mortgages issued in Los Angeles County was down 26 percent for the first seven months of 1992, compared with the like period a year ago. Statewide, the volume of home-purchase loans for the seven-month period was down 18 percent from the like year-ago period.

From January through July 1992, lending volume for home purchases in Los Angeles County was $8 billion, compared to $10.8 billion for the like period of 1991, according to TRW-REDI.

Statewide, home-purchase loan volume was also down. From January through July this year, lenders lent $33.3 billion, compared to $40.8 billion for the like period in 1991.

Fears about the economy, particularly the high unemployment rate, is what is driving the decrease in home purchasing, said Diana Meyer, market researcher with Countrywide Credit Industries.

"I think people are afraid of losing their jobs or getting another one," Meyer said.

While home-purchase lending is sliding, the opposite trend is taking place in refinance and home equity lending. In short, the refinance boom that began last year is continuing this year with a vengeance. The volume of refinancing and home equity loans for the January-through-July period this year was about twice the volume of such loans in the like year-ago period for both L.A. County and the state, according to TRW-REDI.

Statewide, residential refinancing and home equity loan volume was $99.1 billion in the first seven months of this year, compared to $48.1 billion for like year-ago period.

In Los Angeles County, the volume of refinancing and home equity loans grew from $14.6 billion in the first seven months of 1991 to $27.9 billion for the like period in 1992.

San Francisco-based Bank of America was the top lender in both the state and the county for both the refinance and home-purchase loan categories, according to TRW-REDI.

For refinancing and home equity loan volume, Bank of America was No. 1 in the state with $5.0 billion in such loans for the first seven months of this year. BofA was followed by Countrywide Credit, which generated new refinancing and home equity loans in California totaling $3.5 billion in the first seven months of 1992.

Countrywide's No. 2 ranking on the list of the state's top refinance lenders this year is a dramatic improvement from its No. 8 ranking for the like period in 1991.

Meyer of Countrywide said the Pasadena-based mortgage banker has continued to set new records for the amount of loans funded each successive month for more than a year. In September of 1992, the amount of loans funded by Countrywide nationwide was $3 billion, compared to $950 million in September 1991, Meyer said.

Refinance and home equity loans make up the majority of new loans generated by Countrywide. To illustrate, only 22 percent of Countrywide's new loans in September were home-purchase loans, Meyer said.

Another trend in home-purchase loans is that an increasing number of home buyers are opting for adjustable-rate mortgages, rather than fixed-rate mortgages. Until recently, fixed-rate mortgages had been the preferred product since interest rates began dropping more than a year ago, Meyer said.

She added that this September, 29 percent of Countrywide's purchase loans were adjustable-rate mortgages, compared with 18 percent in September 1991. The two main reasons adjustable-rate loans are increasing is that adjustable-rate loans are more affordable, at least initially, for first-time homebuyers and the gap between adjustable rates and fixed rates is growing, she said.

In September 1992, the national average adjustable interest rate was 5.24 percent and the average fixed rate was 7.24 percent, a difference of 2.7 percent.

By comparison, in July 1991, the national average adjustable rate was 7.25 percent and the average fixed rate was 9.67 percent, a difference of 2.42 percent, Meyer said.

So, not only are interest rates lower overall, but the gap between the adjustable rates and the fixed rates has been growing, Meyer said. First-time home buyers are also better able to qualify for an adjustable-rate loan and to afford the payments.

Bank of America was the top home-purchase lender in the state for the first seven months of this year, lending $2.5 billion in home-purchase loans, followed by Irwindale-based Home Savings of America, which lent $1.4 billion in the same time period, according to TRW-REDI.

Chatsworth-based Great Western Financial Corp., which was the No. 2 lender in California for the first seven months of 1991, fell to the No. 5 spot for the like period of 1992, according to TRW-REDI.

Great Western will lend $9 billion for calendar year 1992, compared to $10.5 billion in 1991, estimated Sam Lyons, senior vice president of mortgage banking for the Chatsworth-based savings and loan.

Lyons said the drop in lending volume is intentional. "You don't want to be No. 1 in loan volume in a slow economy," Lyons asserted. Great Western officials decided on the $9 billion figure because that volume would replenish runoff in the loan portfolio, he said. Great Western intends to lend $10.5 billion next year, but with a higher percentage of out-of-state loans.

Earlier this year Great Western Chairman and Chief Executive Officer James Montgomery caused a stir by saying that the thrift was looking to make 50 percent of its loans outside California in the next few years.

The savings and loan has been making 75 percent of its loans inside California for years. Wall Street analysts and financial reporters interpreted Montgomery's remarks to mean the giant thrift was trying to disengage from the financially troubled California economy.

But Lyons and other Great Western officials have said the remarks were misinterpreted. Great Western has had a plan for many years to diversify its portfolio by lending in other areas of the country, they insisted.

Lyons said that this year 75 percent of loans made by the thrift will be in California, but that proportion may decrease to 70 percent next year.