What does the reshaping of the thrift industry mean to the mortgage business?

If nothing else, it could mean that the market share of conventional loans will climb. That share peaked at about 54% at the height of the 1993 refinancing boom and has slipped back to about 40% since, with adjustable- rate loans, the thrifts' specialty, coming back into style in 1994 and early 1995.

Historically, market share has shifted, along with fluctuations in interest rates, between mortgage bankers, which channel all their loans to investors, and portfolio lenders who hold the loans for their own investment. Relatively low rates have favored mortgage banks and the housing finance agencies with which they do business, while relatively high rates shift the balance in favor of portfolio lenders.

But some things have changed in the last couple of years. One is that some thrifts have lost the will to compete in the mortgage market. With some notable exceptions, the big, highly visible thrifts that are determined to stay in the business are turning to mortgage banking instead of making loans for their own investment portfolios. Thus, it is no longer necessary for them to use variable-rate mortgages to balance the short-term liabilities with which the loans are funded.

In the first quarter, H.F. Ahmanson & Co.'s Home Savings of America, the nation's largest thrift, sold $808 million of home loans, most of them ARMs, to Fannie Mae as part of a program to shrink its mortgage assets. And two much-smaller thrifts, both in Michigan, sold even more loans, mostly with fixed rates, to Fannie Mae and Freddie Mac. Troy-based Standard Federal sold the agencies $1.7 billion of loans, and Flagstar Bank, Bloomfield Hills, topped that with $1.8 billion.

Thrifts have been making only about a third of their loans at adjustable rates in recent months, down from about two-thirds early last year.

To be sure, the lending environment strongly favors fixed-rate loans these days. Should rates begin to climb, the picture could change drastically, some observers argue.

Indeed, analysts say the market share of ARMs should climb to 30%, perhaps even 40%, in some months this year, but will average in the low 20s. But others point out that the thrifts do not have the low-cost funds available to price aggressively that they did a year or more ago, so they can't turn a small rise in rates into a big market advantage.

But there is also a contrary trend: some thrifts have entered into agreements under which mortgage banks originate ARMs for the thrifts' portfolios. Whether this kind of business is substantial enough to offset a retreat from portfolio lending by some big thrifts is unclear.

And certainly, there is still an old guard of large thrifts, and large numbers of smaller ones, that will continue to regard mortgages as their basic business.

But to the extent that thrifts are no longer primarily portfolio investors, a rising ARM share of originations should flow through the secondary-market agencies.

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Some mortgage-market analysts are expecting loan rates to drift downward for the rest of this year. If they are correct, rates on 30-year fixed mortgages could get back close to the 24-year lows of two years ago.

But how low could rates go in a more perfect world?

Lawrence Lindsey, a Federal Reserve Board governor, says that if the Fed can achieve its long-term target of a 1% inflation rate, mortgage rates could return to 5.5%, a level last seen in the 1950s.

"Our long-term strategy is to keep inflation under control so over time people have access to the same mortgage rates my parents had," Mr. Lindsey told a meeting of the Neighborhood Reinvestment Training Institute in Washington.

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