The year 1993 may have been the single most eventful period in the history of the mortgage industry. Just look at some of the things that happened.
The Refinancing Boom. With interest rates in an almost unbroken decline throughout the year, refinancings reached record levels and pushed mortgage originations to about $1.1 trillion as purchase originations also showed strength. That figure was almost double the level of any previous year but 1992, when $890 billion was lent to homeowners.
The Prepayment Drain. Mortgage prepayments are the dark underbelly of refinancings because they drain established portfolios of mortgage servicing rights, thus reducing their value. Accelerated amortization of servicing rights struck down company after company, including Fleet Mortgage Group, Margaretten Financial Corp., Lomas Financial Corp., and Express America. And Meridian Bancorp, Reading, Pa., pulled out of the servicing business altogether.
Even seemingly invincible Countrywide Credit Industries, Pasadena, Calif., hit a bump in its third fiscal quarter as prepayments continued high and its servicing hedge proved less effective because of a brief upward spike in interest rates. The company still showed a year-to-year gain in profits, but the size of the increase disappointed investors.
Big Growth in the Secondary Market. Low interest rates not only sparked high refinancings but convinced borrowers that fixed rates and shorter terms were the best deals. As a result, banks and thrifts, who prefer adjustable rates, shied away from mortgages and thus continued to cede market share to mortgage banking companies, which now account for well over half of originations.
Meanwhile, yield-hungry investors gobbled up all the product the industry could turn out, and Fannie Mae and Freddie Mac continued to rack up strong profits.
The Attack on Bias in Mortgage Lending. Even while their share of the home loan market was shrinking, banks and thrifts took all the heat for lending policies that appeared to put minorities at a disadvantage.
While the debate continued over whether statistics gathered under the Home Mortgage Disclosure Act actually proved anything, lenders generally took the issue to heart and mounted outreach programs to increase their minority lending.
And mortgage bankers, eager to avoid government regulation, also pitched in, often in concert with Fannie Mae or Freddie Mac, which have been redefining their credit standards for minorities.
Some Big Mergers and Some Big Misses. The biggest merger in the history of the mortgage industry was announced in May, when PNC Bank, Pittsburgh, made a $328 million deal for Sears Mortgage Corp., Vernon Hills, Mich., and a few other Sears mortgage properties.
With Sears Mortgage taking over the bank's entire mortgage operation as PNC Mortgage, the company needed more management muscle and elevated Saiyid T. Naqvi to president, joining Walter "Terry" Klein, chairman, on the top management team.
The Sears-PNC merger became final in December.
Two of other big acquisitions were made by First Tennessee National Corp., Memphis. Led by its chief executive, Ronald Terry, it bought Maryland National Mortgage Corp. for $116 million and Sunbelt National-Mortgage Co., Dallas, for $67 million.
In July, meanwhile, Chase Manhattan Corp. snapped up Troy & Nichols, a $10 billion servicer in Louisiana, for an undisclosed sum.
One controversial deal was GE Capital Corp.'s purchase of Shearson Lehman Hutton Mortgage Corp., Irvine, Calif., for about $70 million. Some mortgage bankers saw Stamford, Conn.-based GE Capital as increasingly competing with them for wholesale purchases of mortgages. GE was also reported to have been a bidder for Sears Mortgage.
The big one that got away was GMAC Mortgage, based in Elkins Park, Pa., which was put on the block by General Motors Corp. Some of the biggest names in the industry surfaced in the rumor mill as possible bidders. But GMAC apparently couldn't get what it regarded as an adequate price, and at the same time GM's finances improved, so the mortgage unit was taken off the block.
The Resolution Trust Corp. has also experienced delays in disposing of Standard Federal of Gaithersburg, Md., and Carteret Savings of New Jersey, partly because of efforts to find minority-owned companies as bidders for brokering the deals.
American Residential Mortgage Corp., La Jolla, Calif., canceled a deal for Foster Mortgage-Corp., Fort Worth, Tex., whose servicing portfolio was later sold to NationsBank, Charlotte, N.C. Foster is considering bankruptcy for its remaining business.
Tough Goals and a New Watchdog for Fannie and Freddie. The Department of Housing and Urban Development issued pretty much the same affordable-housing goals for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. as it had originally drafted. Intensive lobbying by the two government-sponsored enterprises achieved only minor changes in the targets.
Freddie Mac reported in December that it was likely to fall short of its goal for business in center cities while doing reasonably well on the other targets. Fannie Mae also said it appeared to be falling short of its central-cities goal.
Meanwhile, Aida Alvarez was named head of the Office of Housing Enterprise Oversight, created by Congress to monitor the financial health of Fannie and Freddie. The office was still being staffed at yearend after losing a bid to hire a staff of 60.
Respa Produces Much Heat But Little Light. Regulations drafted by HUD for the Real Estate Settlement Practices drew a firestorm of complaints and a couple of lawsuits. The agency was faced with the problem of devising rules that on the one hand combated kickbacks but on the other did not bar the spread of one-stop shopping for mortgage services. HUD has promised to revisit the issue and come up with modified regulations in the New Year.
The Largest Thrift Got a New Chief. Charles Rinehart became chief executive of H.F. Ahmanson & Co., the No. 1 thrift and a major mortgage lender as Richard Deihl stepped aside. Mr. Rinehart vowed to take any necessary steps, including major shifts in business mix, to lead the company back to growth. Like other California institutions, Irwindale-based Ahmanson has been troubled by credit-quality problems in recent years.
In other personnel developments, Art Ringwald left Sears Mortgage to become head of mortgage operations for Bank of America, San Francisco, which is eager to revitalize its once-extensive business.
Mark Korell was promoted to chief executive of General Motors Acceptance Corp.'s mortgage unit after serving for several years as head of the affiliated Residential Funding Corp.
And Steve Ashley, head of Sibley Mortgage Corp., Rochester, N.Y., became president of the Mortgage Bankers Association of America, Washington.
Some Corporate Milestones. Countrywide Credit became the No. 1 lender and No. 1 servicer during the year. Its servicing portfolio topped $75 billion despite very heavy prepayments, and it originated a phenomenal $5 billion of loans in November.
In December, Prudential Mortgage got the largest warehouse line of credit ever, $3 billion. That eclipsed the $2.7 billion credit received earlier in the year by Countrywide.
Both Prudential and American Residential Mortgage Corp., La Jolla, Calif., received high credit ratings from the rating agencies that permitted them to enter the commercial paper market, thus reducing their inventory funding costs.
