Interest rates prompt mortgage reversal

Out with the refis. In with the purchase loans.

The local mortgage market is subject to its share of twists and turns, but representatives from a few companies that endured significant lending declines in 2013 say a new normal has been established.

Among the recent changes is Grandview-based North American Savings Bank closing its brick-and-mortar office, a move that bolstered Flat Branch Home Loans. Two months ago, seven mortgage loan officers and two loan processors from NASB signed on with Columbia-based Flat Branch Home Loans, which then occupied NASB’s former Springfield office at 4350 S. National Ave.

NASB is the second regional bank to shutter its Springfield mortgage operations this year. St. Louis-based Heartland Bank closed its South Campbell Avenue office around the end of January after USA Mortgage recruited eight of its nine local employees.

The shifts in staffing come as lenders reacted to a rise in interest rates in mid-2013 that seems to have triggered industrywide changes.  

Flat Branch upswing
Former NASB mortgage officers Mark Trigg and Tom Nash said they had the pick of the litter when they selected Flat Branch Home Loans as their new employer after a week of being courted by over 30 local, regional and national banks. Word got out the online-centered NASB was leaving Springfield through national mortgage blogger Rob Chrisman, who on April 2 said the looming move presented opportunities for new hires. 

“We wanted to find the one that could offer the best support,” Trigg said, adding the suitors included most of the locally based banks and Heartland Bank, even after officials had closed its Springfield office.

In the end, Flat Branch, which had operated for two years at 3812 S. Fremont Ave., approached the former NASB team.

“They wanted to grow their presence, but were limited on space,” Trigg said of the move to South National Avenue. “This building had lots of space, and it was good for us to not leave for our customers.”

The scenario created an unusual twist.

“Instead of us leaving to join them, they left their office to join us,” Nash said.

Mortgage volumes in NASB’s Springfield office were soft in 2013, down to around $60 million from $85 million in 2012. During the past 10 years, the former NASB officers say the team averaged roughly $75 million in loans a year.

With Flat Branch, the team likely won’t top $65 million in 2014 – a year of transition from largely refinances to purchase loans dominating.

The refi spigot
Michael Frerking, senior vice president and residential lending manager at Guaranty Bank, said the refinance market dried up following interest rate increases in mid-2013, and he doesn’t think it is coming back any time soon.

“2012 was a tremendous year for the industry in terms of mortgage volume, and a lot of that was rate-driven with rates at historic lows,” Frerking said, noting new home loans were starting to gain traction. “2013 was following suit with pretty much the same dynamics.”

That is until rates began to climb last May. By September, the government’s move to back off on quantitative easing resulted in long-term interest rates going up a point to around 4.5 percent – the bulk of the increase occurred within a week in late June.

“What that did was turn the spigot off for refis,” he said.

According to FreddieMac.com, 30-year fixed-rate mortgages dipped as low as 3.35 percent in November and December 2012 before moving above 4 percent in June 2013 and hitting a recent high of 4.49 percent in September. Last month, the rate was 4.19 percent.

Following a 2012 that generated $85.9 million in mortgage closings, 2013 garnered $62.7 million for Guaranty Federal Bancshares Inc. (Nasdaq: GFED), a 27 percent decline. Before rates went up, Frerking said refinance loans represented about 70 percent of its mortgages, and now the percentages have flip-flopped with traditional purchase loans.

“It was amazing how quickly that shut off,” said Steve King, director of mortgage lending at Great Southern Bank, where mortgage volumes last year fell 28 percent to $212.8 million.

Before last summer, he said purchase loans represented about 45 percent and refinances held 55 percent of all mortgages Great Southern signed, and now, refinances represent less than 30 percent of volume.

“I definitely think we are getting to a new normal. I’d say it’s a purchase market,” King said, adding more staffing changes could be on the horizon as banks try to match lending staff levels with anticipated consumer demands. “The industry is trying to do that because we are never going to replace that refinance market.”

According to Springfield Business Journal list research, only three of the area’s 13 largest mortgage companies recorded a mortgage volumes increase in 2013. Bucking the trend was OakStar Bank, FCS Financial and Arvest Bank, which produced $215 million in local loans last year, up from $133 million in 2012.

Carla Green, Springfield-area mortgage loan manager for Arvest, said adding new branches through a buyout of several Bank of America locations and two bank openings helped fuel the rare loan growth.

Still, Arvest is experiencing similar trends.

“Through May of 2013, we were 44 percent purchase business and 56 percent refinances. Through May of this year, we are 74 percent purchase and 26 percent refinance,” Green said. “There will always be a need for refinances, but rates have been low long enough that I think we’re going to be a stronger market for purchase loans.”

In May, 21-year industry veteran Frerking said purchase volume was up 35 to 40 percent compared to the year before – with homes in the $150,000 to $300,000 range driving the demand – but loans are only now beginning to become active.

Area lenders expect 2014 volume to be flat in the Springfield market compared to last year.

“It’s hard to see rates on loans going lower,” Frerking said.[[In-content Ad]]