Chris Low, chief economist for First Horizon National Corp.’s capital markets division FTN Financial, has been on the road in recent days.
He’s been out talking to community banks and credit unions. And the picture they left with Low is that the money they make from mortgages is shrinking – that the mortgage business is not as profitable these days as it once was, low interest rates being one reason.
When interest rates are low, one way to offset that is by just making more mortgages. And to a certain extent, that’s what banks and lenders across Shelby County are doing.
Total mortgage volume throughout Shelby County last month was up 25 percent over September 2011, climbing to a little more than $106 million in September 2012 from $84.7 million during the same period last year, according to real estate information company Chandler Reports, www.chandlerreports.com.
Similarly, there were more mortgages made last month – 693, up from 565 in September 2011. Also, the average mortgage amount rose to $153,137 last month from $150,024 in September 2011.
That overall trend also corresponds to the pattern of home sales during the month, when September saw the ninth consecutive monthly increase over 2011. Shelby County saw 1,272 home sales last month compared to the 1,069 homes sold in September 2011, according to Chandler Reports.
Low highlighted the significance of low interest rates during one of his semi-regular presentations in recent days on the state of the economy.
“Bankrate.com, which does a national average of mortgage rates on a daily basis, has shown record low rates every day for the past couple of weeks,” Low said. “We’re now at about 3.4 percent, according to Bankrate.com, for a 30-year, fixed-rate mortgage on average in the U.S. There have been a couple of articles written suggesting mortgage rates haven’t come down as much as yields on mortgage-backed securities, and because of that mortgage underwriters are printing bigger profits on these deals than they have in the past.
“The data suggests some expansion of the mortgage pipeline and some hiring, as long as the profits are there. Eventually, we will see the benefits falling to homeowners.”
Some of the benefits, he goes on, already are getting through.
“Mortgage refis are coming in at the highest levels since 2009,” Low said.
“People are aware of the programs, and they’re trying to take advantage, which is the best the Fed can ask for. The benefit isn’t going to come into the economy the way it has in prior cycles. For banks, it will be an extraordinarily challenging environment for the next six months or so. The Fed is aiming at what has been one of the most profitable places in bank portfolios. It will require adept managing of both lending and investment.”
Some of September’s mortgage totals were down a little from the prior month’s despite being above the year-earlier totals.
Between August and September, total mortgage volume fell to $106 million from $127.5 million. The number of mortgages went to 693 in September from 845 in August, but the average mortgage amount climbed to $153,137 in September from $150,915 in August.
Some of the largest Memphis-based banks reported mortgage volume increases over the two September periods. First Tennessee Bank’s September 2012 mortgage volume, according to the Chandler numbers, was up 74 percent over September 2011 (from $1.2 million to $2.1 million). And Magna Bank’s volume during that same period was up 11 percent (from $6.6 million to $7.3 million).
According to the Federal Reserve Bank of St. Louis in its most recent “Burgundy Book,” a report measuring Memphis-area economic activity in September: “Housing activity in the Memphis area thus far in 2012 has been much stronger than the nation’s pace of activity.”
Chandler Reports is a division of The Daily News Publishing Co. Inc.