Rising long-term interest rates are putting a damper on what has so far been a strong year in mortgage lending.
Last week the two largest independent mortgage companies reported declines in August volume. This week the Mortgage Bankers Association expects to report a decline in application volume.
Countrywide Credit Industries, the No. 1 independent, reported $3 billion in mortgage originations last month, down from $3.2 billion in August 1995. Approved loans being processed at the end of August were down 18%, to $4.3 billion, an indication that volume in coming months will also be soft.
North American Mortgage Co., No. 2 in the industry, reported Friday that loan fundings for August decreased 8%.
Industry analysts, though, took the news in stride. The consensus was that the slowdown will be mild and that full-year figures will still be strong - even if the Federal Reserve raises interest rates.
The average offering rate on 30-year fixed loans climbed to 8.34%, according to the latest weekly survey by Freddie Mac, the Federal Home Loan Mortgage Corp. That was just below the 8.42% high for the year, set in mid- July.
"Rates have been up most of this year, more than many people thought," said David Berson, chief economist at Fannie Mae, the Federal National Mortgage Association. "But rates haven't made a big dent in purchases so far."
Mr. Berson said loans to buy homes could set a record this year, driven by the strong housing market. He added that housing affordability remains, that prices have begun to rise after a long slump, and consumer confidence is holding strong.
David Lereah, chief economist of the Mortgage Bankers Association, said the strong job market should continue bolstering the housing market. He said interest rates will have to move even higher to significantly slow the housing and mortgage markets.
In fact, loan applications increased during the past week, according to a Mortgage Bankers Association survey. But this could be a "mad rush before the storm," Mr. Lereah said.
Overall, Mr. Berson said, this still should be a strong year for mortgage volume. "I'm still working on a revised projection, and volume could well be more than $760 billion." He said there was about a fifty- fifty chance that the Fed would tighten interest rates after the November election, a move that would have no impact on 1996 volume.
Meanwhile, refinancings have shrunk to just 20% of all loans and appear likely to shrivel further as rates edge up. Some lending could be diverted away from mortgage banking companies as consumers shift to adjustable-rate loans, a specialty of the thrifts.
But Mr. Lereah added that such a diversion wouldn't spell disaster for the mortgage bankers because many of them have made inroads into the adjustable-rate mortgages market.
On balance, loan volume for mortgage companies could be flat or slightly off for the rest of the year, but they are likely to have strong years anyway on the strength of earlier volume.
For the first six months of Countrywide's fiscal year, loan originations were up 29% from the same period last year. North American's loan fundings rose 48% and applications increased 42% for the first eight months of 1996.
