While most thrifts are gritting their teeth in anticipation of a slump in adjustable-rate mortgages, Washington Federal Savings is preparing for good times. It has stuck to the old-fashioned business of making and holding fixed-rate loans.
While last year's adjustable-rate boom slowed its loan growth, it has never wavered from the fixed-rate strategy.
Now executives say they expect healthy growth as consumers return to fixed-rate loans and prepayments remain low.
Already in the first four months of this year, the thrift has increased its portfolio by more than 5%, to $145 million.
The first quarter was "one of our best," said Guy C. Pinkerton, Washington Federal's chief executive officer.
As rates have fallen, consumers have moved away from adjustable-rate mortgages. In March, ARMs made up 43% of all home loans originated, down from a six-year high of 59% in January.
The thrift's share of real estate loans in Washington's King County, which includes Seattle, has climbed to about 5% from 3.12% last year.
As with other thrifts, Washington Federal's interest margin narrowed as short-term rates increased last year. This year, Mr. Pinkerton said, he expects margins to improve.
The thrift has a reputation among securities analysts for keeping costs down. It does not offer ATMs and uses tellers to process loans. It is also a wary lender, approving only top-quality buyers so it has only rate risk to keep track of.
While Washington Federal lost business to ARMs last year, Mr. Pinkerton said, the thrift actually faces tougher competition in a fixed-rate market. Many mortgage banks with which the thrift competes turned their attention to ARMs last year, leaving more room for Washington Federal to make fixed- rate loans. Now the mortgage banks are emphasizing fixed-rate loans again.
Charles R. Richmond, executive vice president at Washington Federal, explained that the thrift has stayed away from ARMs because it believes they aren't profitable enough.
He said the loans are hard to book when they are most desirable from a lender's point of view, that is, when rates are lowest and set to rise.
And they're difficult to keep on the books as rates start falling and consumers refinance into fixed-rate loans, he said.
But, he said, Washington Federal might consider holding ARMs if it were allowed to apply prepayment penalties.
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LOS ANGELES - Aames Financial Corp. has completed its largest securitization.
The consumer finance company has breached a significant barrier by securitizing $100 million of home loans.
A securitization of $100 million or more is considered a landmark in the investor market for securities backed by home loans to borrowers with impaired credit histories - an Aames forte.
Aames has been aggressively expanding its operations over the past couple of years. In particular, the finance company has been expanding its wholesale lending unit.
It has also been opening new offices in the West. The company said in an announcement that it expects to open retail offices in Seattle, Tacoma, Wash., and Mesa, Ariz., this summer. And retail offices in Chicago will be opened later this year, the company announced.
- Jonathan S. Hornblass