Mortgage bankers expect increase in rates to slow

April 21, 1994|By Lorraine Mirabella | Lorraine Mirabella,Sun Staff Writer

The rapid rise in home mortgage interest rates is likely to slow in coming months, the Mortgage Bankers Association said yesterday, but rates will edge close to 9 percent by the end of the year.

A jump in rates on conventional 30-year fixed-rate mortgages from last year's low of 6.5 percent to about 8.5 percent last week has caused loan originations to fall off, nearly killed lenders' refinancing business and priced some 250,000 families out of the U.S. housing market, said Warren Lasko, the association's executive vice president, at a news conference in Washington.

"We see mortgage rates continuing to creep up, staying in the 8.5 range [this year] and creeping over the 9 percent threshold for 1995," Mr. Lasko said, announcing the group's adjusted forecasts since the Federal Reserve increased short-term interest rates for the third time this year. "Mortgage origination volume has dropped off substantially. It had been extremely active over the last few years because of refinancing."

Last year, mortgage loan originations for single-family homes totaled $1 trillion. The bankers' association expects to see $770 billion worth of loans originated this year, a 23 percent drop. The group forecasts another drop, to $700 billion, in 1995.

But higher rates won't take their toll on housing construction and sales until next year, when the number of housing starts is expected to drop from the 1.4 million projected this year to 1.3 million, Mr. Lasko said.

Mr. Lasko said rates near 9 percent still won't be high enough to put a choke hold on home purchases next year.

In the short term, "people in the market probably are inspired to go ahead and sign a contract rather than wait and run the risk of rates going up," Mr. Lasko said. "There's no question that ultimately higher interest rates will cause people to decide they rather like the house they're in, and this is not the time to move."

Lenders' refinancing business is expected to shrink to about 20 percent of total loan volume, while adjustable-rate mortgages that allow buyers to get into homes at a lower rate will probably surge in popularity, Mr. Lasko said. The shift could cause mortgage bankers to lose market share to thrifts and commercial banks, he said.

The lending industry also could suffer a 10 percent cutback in employment, Mr. Lasko said, noting that many companies hired part-time workers, staffed offices on weekends and parceled work to outside firms during last year's refinancing frenzy.

"Virtually all of that has been eliminated," he said.

Lenders in the Baltimore region are already feeling the pinch.

"Volume is down," said Chuck Riley, vice president of Mercantile Mortgage. "Refinancing over the last couple of years represented a great deal of business. That has come to a screeching halt in the past couple of months. These rates are pretty close to what people have."

James M. Goryeb, vice president of Champion Mortgage Co. of Parsippany, N.J., which entered the Baltimore market last year, said consumers who would have been candidates to refinance their loans are instead turning to second mortgages as a way to get extra cash.

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