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Boardroom view.

You know that market rates have been bouncing wildly when you talk to secondary marketing managers and they just laugh when you ask them to comment on how volatile rates have been. Then you ask where they think rates will go from here, and they laugh some more. Perhaps it's because the decisions these people make carry such serious consequences, that they have to laugh to shed some of the tension. Or maybe they do it just to signal the futility of the exercise when the market is just doing its own thing, and doing it with a vengeance. But the good news is the percentage of refinancings in the pipeline is tapering off. That one doesn't get a laugh. But the few secondary marketing people we talked to quickly conceded they were very happy to see the refis go.

In self-defense, lock policies have been put in place to either drive refi business away or put refinancing borrowers' dollars at stake in case they decide to walk. These policies have helped to maintain the sanity of the people charged with covering these very flighty loans in the pipeline.

Another issue secondary marketing people have had to wrestle with lately is calling back prices they send out to the army of loan officers and correspondents at the start of the day and replacing them with a whole new set of price quotes. Beepers and fax machines have been called into action like never before as repricing twice in one day becomes necessary when the market takes major price swings.

Elizabeth Clarke, senior vice president in charge of secondary marketing, Princeton Financial Corporation, Orlando, says that in the four weeks between late February and late March, about once a week they have had to pull back earlier rates and reprice twice in the same day. She says they try to keep those occasions to a minimum, and it would take a half point move in discount points before they would send out new quotes during the same day. She says the new quotes need to get sent out to 75 to 100 locations so the logistics get complicated. Princeton Financial has about nine branches and the rest are correspondents. The mortgage company uses a special fax distribution company to get the revised prices out on a timely basis.

Of her locked pipeline, Clarke said that as of March 25, about 40 percent were refinances. The refi percentage had it a peak of 60 percent of her locked pipeline earlier, she noted. Clarke said even though Princeton's pipeline was still growing in late March, it was not increasing at the levels they saw in January and February. Clarke said that in the last week in March and in early April, the refinancings probably would drop from the 40 percent level, partly due to changes adopted to discourage this business from coming in.

The smaller share of refinancings coming into the pipeline can be attributed to a policy change that Princeton initiated in the second week of February, Clarke said. The mortgage company decided then to require all refinancing borrowers to take out a 60-day lock at application and pay 1 point upfront that would be credited toward closing costs. It is nonrefundable unless mortgage credit is denied. She says they made it a 60-day lock because "that's what it's taking to close." And even with that much time, she says some cases have required Princeton to extend the locks.

Clarke says Princeton's overall fallout rate has been running about 30 percent of her locked pipeline. In late March, she still had roughly 40 percent of her pipeline that was floating. She said part of that production came in prior to the lock policy change requiring refis to lock-in at application.

Clarke described the market as "very" volatile since mid-January. She characterized the bond market from mid-March to late March as a "whippy market," noting that prices would improve and some technical levels would be broken through briefly, only to see the market give all the price improvement back shortly thereafter. Around March 25, Clarke saw the equilibrium point for the 30-year Treasury bond in the range of about 8 percent. "I see us staying at this level probably for another month or two," she said. After that, she predicted some slight downward movement for interest rates, as the economy begins to falter as it digests the generally higher interest rates that have prevailed in more recent months after the first of the year. Are there any inflationary fears that could get in the way of a moderate rate decline? "There doesn't appear to be," she said.

Mark Dinkins, vice president of secondary marketing, AccuBanc Mortgage Corporation, Dallas, also noted that there had been significant volatility in the market. During March, he said, about 20 percent of the time his company had to change its pricing mid-day. Still, he called repricing "rare" and said because AccuBanc is predominantly a retail mortgage banker, the company "was reluctant to change prices unless there was a significant move in the market." He said typically a move in rates of a half point would prompt repricing mid-day.

AccuBanc has roughly 16 branches and had closings approaching $100 million for March with a good week left in the month. Dinkins said to get the word of a price change out to the loan officers on the street, the marketing staff relies on a combination of faxes and laser printers. AccuBanc has operations managers in the branches who can beep loan officers who are out making calls on clients to inform them of the unusual price change.

Dinkins traces the greater volatility in rates back to the beginning of the year. January 8 was the point at which rates hit their low, he said. AccuBanc's pipeline as of late March had been "maintaining at a fairly constant level." Dinkins said that volume had grown tremendously through January and into February. At late March, he said, the mortgage company was not seeing volume increase as dramatically as the earlier surge.

Dinkins said even so, the volume of closings this year is about 20 percent ahead of last year across-the-board. AccuBanc has taken steps to limit refinancings as a percentage of overall production, Dinkins said. If refinancing borrowers want a rate lock of longer than 15 days, they must pay a nonrefundable fee at the time they lock in, he said. The fee is applied toward closing costs. The lock policy was enforced last spring when the mortgage company saw rates improving dramatically, Dinkins said. The lock fee has helped reduce pipeline fallout from refis, he said. AccuBanc's overall closing rate has been at the 80 percent level, although the company doesn't isolate refis to track them separately.

At the peak of the refi cycle, he said, refinancings hit 40 percent of the company's locked pipeline.

The standard lock period offered is 60 days, Dinkins said, and normally the company offers a free 60-day lock for its purchase originations.

Dinkins said that both Fannie Mae and Freddie Mac had been fairly consistent in the way they have priced their products and have kept relative parity.

Dinkins said that the 30-year fixed-rate mortgage is the most favored product with their borrowers. Yet, AccuBanc has seen a resurgence of popularity for the 15-year mortgage, which is a direct result of the surge in refinance business.
COPYRIGHT 1992 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:secondary marketing managers concerns
Author:Hewitt, Janet Reilley
Publication:Mortgage Banking
Date:Apr 1, 1992
Words:1232
Previous Article:Secondary Market.
Next Article:Controlling the fluid pipeline.
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