By Joe Palumbo
Remember the movie that asked “just when you thought it was safe to go back into the water?” We can parallel that feeling with the present-day mortgage market. Just when it looked as if mortgage refinancing was on the decline, renewed demand has returned.
With interest rates the lowest level since the Kennedy administration, the commodity of money remains cheap. And mortgage rates are, too. Home values are rising and further generating equity homeowner value.
This is marvelous news for banks and thrift institutions. It is the constant turnover of debt in which repetitive fees are collected where money is made at the front end and back end under the guise of refinancing. As long as rates trend lower, there will be borrowers seeking lower rates or conversions from adjustable rates to more favorable lower fixed rates. But for the lenders there is a catch.
Each refinance attains lower yields, and when this game is over, lenders are going to find themselves holding very low return instruments. But what about mortgage brokers? For these answers I spoke with Rosalie Labbate of Preferred Empire Mortgage Co., at 215-45 Northern Blvd. in Bayside, who discussed the mortgage market’s competitiveness and growth.
Labbate pointed to the many mortgage advertisements as an indicator of this market’s being one of today’s biggest growth industries. Take hiring, for example. There is a large demand for personnel.
Another clear indication of sharp competition is the existing practice, which Labbate said she has not seen for at least the last 10 years in the form of mortgage modification.
Here is how it works. Those looking to refinance their mortgage shop around for a lower rate. The lender who is holding their mortgage catches wind of it and offers to match the better rate by modifying their existing rate. But just how long can it continue?
As long as bonds are a safe haven with war lurking in the background, pressure will be on rates to remain low, Labbate said. The biggest bulk of mortgage business today is refinancing.
So how’s business in the mortgage market? Labbate said business is excellent. Due to low interest rates, real estate remains in demand. With the approaching spring season, look for sales to further intensity.
Joe Palumbo is the fund manager for The Palco Group, Inc. and can be reached at palcogroup@aol.com or 718-461-8317.
