Consolidation in the mortgage industry will accelerate at such a pace that only the companies with deep pockets will survive, according to a report from Wholesale Access, a Columbia, Md., research firm.
The companys Home Mortgage Industry Annual Report also predicted that the industry will remain very strong through 2001, with lower rates spurring refinancings and a brisk housing market fueling continued purchases.
Though acknowledging growing evidence of an anemic economy including Thursdays higher-than-expected jump in claims for unemployment benefits, to 432,000 Wholesale Access officials remain bullish on the mortgage industrys fortunes for the rest of the year.
The bottom line is that refis continue very strong and mortgage rates are not bumping up, David Olson, managing director at Wholesale Access, said in an interview. As long as this refi binge continues, that means great news for the mortgage industry.
Mr. Olson said the economy is clearly suffering and is perhaps even weaker than many had thought several weeks ago. But this weakening has thus far not seeped into the housing market, which continues as one of the few sturdy pillars of the economy.
The problem in the economy has been entirely in the investment sector, he said. It has not affected the consumer much at all; housing is still very strong. Though the housing market has fallen off somewhat, he said, it has fallen from all-time highs. Every lender I talk to can barely keep up with whats going on, he said.
Wholesale Access officials at first expected a V-shaped recovery on the economic-activity charts, he said, but almost every economist now sees, at best, a U-shaped recovery. With a slow recovery, however, Treasury yields will not bounce back up, he said, which should keep mortgage rates at historically low levels.
Indeed, after creeping up for three weeks, from 7.1% to 7.24%, the average rate for a 30-year fixed-rate mortgage slipped back to 7.2% last week, according to Freddie Macs weekly survey.
Citing the costs of technology, a stock market that rewards larger firms over smaller, and the difficulties of hedging and managing the secondary market, Mr. Olson said consolidation will continue unabated. Its the way its going, and Im not that happy about it, he said. I like to have more competition.
Consolidation offers some benefits to consumers in the form of slightly lower costs, he said, but the negative of declining local service may outweigh the savings.
Youre dealing with more and more national, distant firms, he said. Consumers are not happy about the difficulty of getting local service, he added, especially on the servicing side of the business, where the top five players now control almost 40% of the market.
You cant just walk to the bank and get it straightened out its just a mess, he said. If people were asked, they would say they prefer a local servicer, but theyre not being asked, and thats not whats happening.