Stephen B. Ashley chairman of Rochester-based Sibley Mortgage Corp., is president of the Mortgage Bankers Association. He spoke to American Banker recently about how lenders are responding to the shrinking market.

Q.: How's business for mortgage bankers these days?

ASHLEY: Business volumes are way down. Ballpark numbers are 50% down from a year ago.

Two things account for that.

First, is the drop in refinance activity, and second, a higher percentage of purchase business is being done in the ARM market. Some other components of the lending industry are able to play very competitively in the ARM business.

Companies, universally, are streamlining their operations and downsizing their branches to meet today's volume.

Q.: What else can companies do to compete better?

ASHLEY: I think people are putting pressure on Fannie Mae and Freddie Mac to have a more competitive ARM product.

Lenders are also being very competitive with pricing and aggressive in advertising, realtor relations, this sort of thing..

Q.: Are you concerned that lenders are relaxing credit standards too much as they compete in the shrinking market?

ASHLEY: I think there is a concern [about credit quality] when the market shrinks and everyone is trying harder, including the real estate sales community, to bring people into an approved situation.

That is not atypical when rates go up because everybody is trying harder to qualify every loan they can.

Q.: What are you telling Fannie and Freddie about the need for more ARM products?

ASHLEY: We, of course, are talking constantly with the regional offices of Fannie and Freddie to have them be more competitive, especially on the pricing side.

The 11th District Federal Home Loan Bank's cost-of-funds index is a lagging index. and those that price off that have very attractive pricing at this moment.

We are keeping both Fannie and Freddie well advised as to the competitive nature of the marketplace and urging them to be as responsive as possible.

Q.: Have you been talking to the agencies about technology? Have you receive d any more assurances from Fannie Mae that its origination system will not bypass lenders?

ASHLEY: The industry has been very' direct in expressing our feelings that the role of the government-sponsored enterprises is to work with and through its seller-servicers.

We have had assurances from both Jim Johnson and Leland Brendsel [chairmen, respectively, of Fannie Mac and Freddie Mac] that it is their plan to have that.

I think we have to accept their public positions at this juncture.

Q.: What can you tell me about the fair-lending agreement that the MBA is negotiating with the Department of Housing and Urban Development?

ASHLEY: I can say nothing, and will say nothing, until later in September.

[This interview was conducted before details of a preliminary proposal were published in American Banker.]

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