Mortgage

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Mortgage/27″/mike1st/mark2nd

By ELIZABETH HAYES

Staff Reporter

As anyone who has tried to buy or refinance a home already knows, the mortgage market is going nuts.

Thirty-year fixed rates with an upfront fee of 2 percent sank to a 30-year low on Oct. 1, to 6.12 percent, then spiked to 6.77 percent just eight days later, according to Morro Bay-based Mortgage News Co.

“Rates were moving so fast it was like trying to catch a wild animal,” said Earl Peattie, president of Mortgage News.

Then last week, on the heels of a rate cut by the Federal Reserve Board, rates inched down again before reversing course and hitting 6.49 percent at mid-week.

The impact of these gyrations on Los Angeles-area lenders varies according to the types of loans they make and their company’s structure and size. Larger players, such as Countrywide Home Loans, say they haven’t suffered much fallout, while some smaller lenders or those that specialize in sub-prime loans have been hit harder.

But in general, the recent gyrations have been disconcerting to consumers, lenders and brokers alike.

“The volatility has become a major problem. It’s so unpredictable,” said Phillip Payan, president of Allied Mortgage Co. in Sherman Oaks. Clients, he said, “call us and they want to lock, relock, lock, relock (rates). It’s become a major nuisance.”

Payan said he has tried to help clients by having Allied initially pick up the tab for expensive items, such as credit reports or appraisals, and only charging for those items if the loan goes through. He estimates that 30 percent of recent refinancings have been scuttled because of the movement in rates.

Rates quoted a month and a half ago “deteriorated in three days,” said Rick Culp, executive vice president with Advisors Lending Group. Many consumers were waiting for rates to hit bottom and hadn’t locked in.

“You had a lot of fence-sitters waiting for a low trough to occur,” he said. “We had 40 sitting here.”

But even when rates edged up again early last week, “they still are at their lowest levels in 20 to 25 years,” Culp said.

Low inflation was mainly responsible for the decline in mortgage rates, while the spike was triggered by global financial crises and jittery investors backing away from securities they perceive to be risky.

Specifically, investors shied away from mortgage-backed securities investments tied to bundled-together mortgages. That drop in demand caused prices of such securities to fall, and investment yields to rise. The domino effect was passed onto consumers in the form of higher mortgage rates.

“The rapidness of this move was scary and how quickly the securities market dried up overnight,” said Michael Perry, president of IndyMac Mortgage Holdings Inc. in Pasadena, a real estate investment trust that makes home loans, bundles those loans and securitizes them.

The types of loans most affected by the turmoil are those above $227,150 along with home equity loans, mobile home mortgages and sub-prime loans. Rates for those loans shot up more and didn’t come down as much as those for “conforming” loans (those below $227,150). Conforming loans qualify for being purchased by Fannie Mae and Freddie Mac (quasi-governmental entities that buy mortgages from lenders and resell them to investors), and are therefore perceived as less risky.

Most of IndyMac’s lending is in “jumbo” loans, those above $227,150. But IndyMac is reducing its lending activity in other areas, including mobile homes and home improvement loans. The company has also reduced its portfolio of mortgage securities, he said.

IndyMac’s monthly loan volume is expected to fall from $1.5 billion to as little as $750 million by the end of the year, Perry said. Its assets are expected to drop from $8 billion to $5.5 billion by year end. The contraction has caused IndyMac’s stock to be cut in half from its level at the start of the year. Last week it was trading at slightly above $11 a share, down from its 52-week high of $27.19.

“We’ll have a tough fourth quarter,” Perry said. “Earnings will decline some next year.”

Another group suffering a credit crunch as a result of Wall Street’s flight to quality is sub-prime lenders, who lend to consumers considered a poor credit risk by traditional lenders.

A few months ago, Woodland Hills-based WMC Mortgage Corp. planned to expand its sub-prime lending business. But now it’s cutting back certain product lines and is planning layoffs.

“Buyers of (sub-prime-loan-backed) securities aren’t buying,” said Carl Geuther, WMC’s chief financial officer. “This is the long-term fallout of what’s happened in Wall Street and to hedge funds. That liquidity leaving the market has impacted price, and that has impacted our ability to originate those products. Ultimately, this will come down to the consumer. The consumer will have fewer options of credit.”

Not everyone is suffering, however. Calabasas-based Countrywide, the nation’s largest independent mortgage lender, hasn’t suffered too much fallout from the recent volatility.

“It was a 10-day blip in the market,” said Randy Willox, Countrywide’s executive vice president. “Rates are still extremely attractive. We are having an extremely good application month.”

Countrywide is also promoting its two rate-lock programs, which allow buyers to lock in an interest rate while shopping for a home, and allow sellers to secure a rate for prospective buyers of their home.

Meanwhile, Fred Sands, president and owner of Fred Sands Realtors, said that although there was a drop in home sales the week of the turmoil, volume is back on track. “We warned our agents, ‘Don’t worry about it, 30 days from now, rates will be lower,'” Sands said.

Staff reporter Shelly Garcia contributed to this report.

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