With the Federal Reserve taking steps to keep financing costs at extreme lows across the economy, it’s probably not surprising to hear an economist say he’s getting an earful from community banks and credit unions around the country.
Chris Low, chief economist of FTN Financial, a division of First Tennessee Bank, said during his most recent market update for clients, investors and analysts that those bankers keep telling him they can hardly make any money on mortgages these days.
When rates fall, of course, lenders could try making even more mortgages to offset that, and that’s what some banks and mortgage lenders appear to be doing – at least in the Memphis area. During the third quarter of 2012, total mortgage lending volume was up 25 percent in Shelby County, according to real estate information company Chandler Reports, www.chandlerreports.com.
At the moment, low interest rates – which earlier this month fell to a record low of 3.36 percent for a 30-year mortgage – are not surprisingly fueling a refinance boom. Beyond that, the data can be a little noisy and make it tricky to put the quarterly numbers into context.
Speaking to reporters after he gave a speech in Memphis in recent days, for example, Federal Reserve Bank of St. Louis president Jim Bullard described loan demand in the area as “soft.” Also, “a lot of the banks are in fairly weak condition,” he added, speaking broadly about the regional Fed district that includes Memphis.
The Fed’s recently announced QE3 program is intended in part to juice the housing market by lowering mortgage rates. The announcement of the program was made only a month ago, and it’s generally understood that its effects haven’t had time to trickle throughout the economy yet.
Which means time will tell if the local housing market sees a noticeable pickup because of any corresponding drop in rates or because of a sustained period of low rates. For now, total mortgage volume during the third quarter rose from a little more than $300 million in the third quarter last year to almost $376 million in the third quarter this year.
Data for this report included purchase mortgages only, not refinances.
During the third quarter, banks and mortgage lenders in Shelby County made 2,364 purchase mortgages, up 20 percent from the 1,971 mortgages during the third quarter of 2011, according to the Chandler numbers.
Lenders who notched gains in the number of mortgages they made during the third quarter this year included Magna Bank (from 132 to 183), Iberiabank Mortgage Co. (from 85 to 114) and Patriot Bank (from 105 to 110). Community Mortgage Corp. topped the list of the county’s busiest lenders, growing its total volume quarter over quarter from about $35.5 million to a little more than $36 million, according to the Chandler data.
September Mortgages Up
Local banks and mortgage lenders made 23 percent more mortgages during September 2012 than they did in September 2011, according to data from real estate information company Chandler Reports, www.chandlerreports.com.
The number of mortgages rose to 693 in September 2012 from 565 the same month last year. That increased the total monthly volume from almost $85 million in September 2011 to a little more than $106 million in September 2012.
The average mortgage amount also rose a little over the two monthly periods. For September 2011, it was $150,024. For September 2012, it was $153,137.
– Andy Meek
As time goes by, it should be noted, it’s unclear where the numbers will head, according to some watchers. Not all banks, for example, will step up their mortgage activity, because they simply can’t handle it.
Capacity, by its very nature, involves limits, and banks can’t take in more mortgage activity than they can handle. Low alluded to that point in his comments.
“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,” Low said.
Banks and lenders also have to be careful about aggressively extending low rate-fueled mortgage loans to certain buyers, because it could potentially encourage a flood of the same activity partly to blame for the run-up in housing prior to the bubble bursting a few years ago.
For the moment, things are on a kind of even keel in Memphis. From the Fed’s most recent “Beige book” summary of local economic activity: “Residential real estate market conditions have continued to improve moderately” in the Fed’s district that includes Memphis.
More broadly, U.S. mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Oct. 5.
Refinance applications declined somewhat last week in the U.S., according to the MBA, although volume and purchase applications remain at recent highs.
Chandler Reports is a division of The Daily News Publishing Co. Inc.