The industry is in a peculiar position these days. Lenders are looking over a precipice in the form of a big drop in volume. But they really can't complain. They are right now having their second-best year ever as purchase mortgages continue at near-record rates, offsetting the slump in refinancings.
Next year, the lenders are going to see a downturn, but how deep? The economists who follow the mortgage business agree that the decline should be about 25%. But that would still leave 2000 as the fourth-best year on record and a pretty good one by any measure. But any forecast that stretches over 15 months or more is likely to be somewhat fragile. What will interest rates do in that period? The economists' answer is, not much. So it's likely to be a year of fairly strong purchase loans and very sparse refinancings.
But if the Fed decides to tighten rates substantially unlikely but not impossible home purchases could be slowed and loan volume further crimped. Lenders have been preparing for volume shrinkage in recent months by reducing their loan production staffs even as servicing jobs have risen, so they are not likely to be caught with high expenses like they were in 1993. So the question on lenders' minds these days is not about where the market is headed. They are asking, "How far down?"
- Edward Kulkosky