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Refi falloff puts focus on purchase market.

FLATTENING HOME-PRICE INCREASES mean that chattering about your house's rising value is fast becoming passe. Soon it could be as common as overhearing folks at the gym or dell brag ging about their high-tech stocks. National house-price appreciation in the first quarter of this year averaged less than a percent, according to the Office of Federal Housing Enterprise Oversight (OFHEO).

That's close to a five-year low in price increases, and quite a drop from the average increase of almost 6.5 percent recorded over the previous 12 months. These developments have prompted the writing of a new book, The Coming Crash in the Housing Market, by John R. Talbott, a former vice president at New York--based Goldman Sachs & Co. Most mortgage brokers have been too busy with refis to read it, however.

Home appreciation isn't as aggressive as in the recent past, agrees Kurtis Baker, president of Alternative Mortgage & Investment Corporation, Princeton, New Jersey. But Baker is more concerned about the two month time frame required to close refinancings this summer. Wholesale lenders were overwhelmed with business after rates fell to around half-century lows.

Although the economy isn't robust, Baker is aware that conditions could be worse. He recalls some homebuyers losing their jobs in 1990 while their loans were being processed.

Appraisal woes

Other brokers have less-rosy outlooks. Oregon's housing market is weakening, especially at the high-end level, says Milt Cheever, a broker at Cheever Mortgage Company, which has offices in Albany and Corvallis, Oregon. Four originators and an operations staff of three will handle more than $50 million in 2003 production, up $20 million from a "normal year," says Cheever.

Homes priced at $300,000 and above "are languishing" on the market, Cheerer says. Some sellers must drop their prices due to low appraisals, he adds. He encourages potential buyers not to make overpriced offers when prequalifying them for a loan. OFHEO figures show home prices in nearby Salem, Oregon, fell 0.37 percent during the first quarter of this year. "A lot of employers are contracting," explains Cheever, adding that local unemployment runs at more than 11 percent.

Falling prices also have hit Northern California's Silicon Valley. Prices in San Jose, California, dropped 0.17 percent over the first three months of this year, according to OFHEO. Yet strong levels of previous price appreciation--almost 70 percent over the last five years, compared with just 16 percent in Salem, Oregon--and the beneficial effects of refinancing have most homeowners feeling secure about their housing investment.

"Pay cuts and layoffs" are still occurring at high-tech firms, notes Karen Cimera-Brown, senior loan officer at Diversified Capital Funding, Campbell, California. "The job market's not good," she says. But Cimera-Brown notes that refinancing a jumbo loan can result in monthly savings of $800 to $1,000, which can be used to relieve budget pressures.

Cimera-Brown says some Silicon Valley homeowners have chosen to add on to their homes in recent years instead of moving up. She finds that "incomes are way off from two or three years ago," which hurts luxury-home sales. Lenders are responding by accepting higher payment-to-income ratios than in the past. However, they are tightening credit standards, says Cimera-Brown. She's added to her support staff recently, after finding that files sent to wholesale lenders must be actively followed up or they may spend 30 to 45 days in underwriting.

Alternative Mortgage's Baker expects to obtain a warehouse credit line in coming months. His experience of slow turn around times from wholesale lenders, his growing firm's ability to handle additional duties, plus the Department of Housing and Urban Development's (HUD's) proposals regarding the treatment of yield-spread premiums combine to make that step appropriate now, Baker says.

Ready for tomorrow

Cheever affirms he's "not overly concerned" about the future, and is focusing on keeping fixed costs low. "We don't lose deals over price" to competing lenders, he says. One advantage is that Cheever owns his office building and can reduce the rent he charges back to the firm. He also expects that mortgage brokers who are living paycheck to paycheck and retail originators that aren't committed to a weak, midsized market will leave the business.

Additionally, entry-level home sales are seeing "lots of activity," Cheever says. Originators hope a strengthening job market will boost incomes and allow households to keep buying properties despite higher rates. Conditions "are highly favorable for home sales" when long term rates are below 7 percent, note economists at the National Association of Realtors (NAR), Washington, D.C.

Others fret that higher rates could shock a weak recovery back into recession. According to Stephen S. Roach, New York based Morgan Stanley's chief economist and director of global economic analysis, high real rates could become an economic drag--but an ongoing necessity given America's need to attract ever-greater amounts of foreign money to fund its consumption and investment. Still, mortgage brokers are betting that ongoing demand for homes--and their continued affordability--will keep origination volume healthy.

Howard Schneider is a freelance writer based in Ojai, California He can be reached at
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Title Annotation:Broker Business
Author:Schneider, Howard
Publication:Mortgage Banking
Geographic Code:1USA
Date:Sep 1, 2003
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