Mortgage industry feels uncertainties

Tuesday's attacks took a huge toll in human expertise

Uncharted waters

Housing, consumers, interest rates all difficult to gauge

September 16, 2001|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

From his hillside office in New Jersey, just across the Hudson River, Keith Gumbinger could see the smoke billowing from what had been Manhattan's World Trade Center.

Through the smoke it was clear to him and his colleagues at HSH Associates Inc., a firm that tracks and analyzes mortgages, that the financial forces that shape his industry may be drastically altered - at least in the short run.

"There could be ongoing disruptions to what would be the normal flow of business in terms of the stock and bond markets," said Gumbinger, a vice president at the company. "The loss here of human expertise could be far more difficult than the physical loss of a building or paper records."

Gumbinger, like many within the housing industry, is trying to cope with the repercussions of Tuesday's terrorist attacks as America's financial markets get set to function again.

"We have had significant world events before, but nothing that can compare with this," Gumbinger said late last week.

There are questions about how the housing industry, already feeling a softening in the market, will respond. Will consumer confidence, a catalyst for this recent real estate boom, nose-dive? How will mortgage rates respond? Will consumers turn introspective and pause in their pursuit of a new home?

"I think something this major will have some impact; there is no question of that," said John Evans, president of O'Conor, Piper & Flynn ERA.

"Think in terms of how people are thinking today ... just look at the streets, they are not as active. There are a lot of people who are contemplating what has happened and the ramifications of it. They are not being aggressive in their businesses.

"For people to feel this out and get over this period and to get back to business in a normal sense, I think that is going to take some time to do. And, during that time, I think, all business will slow up a little bit. I don't think it will have a devastating effect on the U.S. economy, but I think it will slow down a little bit. Maybe it will be for a few days, maybe for a few weeks. Who knows?"

"Who knows?" seems to be the common answer that brokers and mortgage professionals are giving right now.

`Uncharted waters'

"I've been in business for 30 years and I've never seen this before," said Theodore E. Reichhart Jr., president of First Horizon Home Loans, MNC Division. "What everybody is concerned with is what is going to happen with housing and rates. Nobody is going to be able to give you a good answer until this situation develops further."

"We are really in uncharted waters right now." Reichhart said.

With Wall Street's financial machinery shut down after the attack, Reichhart said, his company could only continue to quote last Monday's mortgage rates to customers throughout the week.

Reichhart, who oversees 26 offices in 10 states, speculated that the stock market will be "negatively impacted," with the result being a "flight to safety" into the bond markets. When money flows into the bond market, where mortgages take their cue, yields drop. Therefore, mortgage rates would fall.

In last week's mortgage survey by Freddie Mac, the average 30-year, fixed-rate mortgage dipped to 6.86 percent from 6.89 percent the previous week. That's been the lowest average since February 1999. But the decline was attributed not only to Tuesday's attack, but also to the most recent report that showed unemployment rising.

"Global financial markets are experiencing volatility, and short rates will most probably fall, at least for a while," Robert Van Order, chief economist for Freddie Mac, said in a statement Thursday. "Our guess about the effects on the housing market is that it will also slow down for a short while due to the additional element of uncertainty introduced by Tuesday's attacks, but will then stabilize."

Although Reichhart said that that economic theory is sound, there remains a great unknown.

"You throw something in there where [many] lives are lost in a senseless attack, and what does that do for the whole psychology of this whole thing ... that is the part you can't figure," Reichhart added.

At the market's mercy

Especially vulnerable are mortgage applicants who have been floating their interest rate. Those borrowers who take the option of not locking in to a specific rate are gambling and hoping that the market will drift downward.

"If you're hanging out there unlocked, [you] are going to be at the mercy of wherever the market opens up," said Michael Sterner, president of Susquehanna Mortgage. "In these uncertain times, [those who are floating] are even more vulnerable."

P. Wesley Foster Jr., president of Long & Foster Real Estate Inc., had already seen a weakening in the real estate market, but after meeting with managers and agents from his Northern Virginia offices, he said he expects last week's terrible events to have little effect on buyers and sellers.

"We are all saddened and angered, but everybody felt that they were going to go on with their lives and what big-ticket items that they were thinking about buying, they were going to buy," Foster said. "They feel like the clients that they have will put their houses on the market."

Only if the situation "gets awfully nasty" does he expect consumer confidence to plummet and sales to drop. Instead of comparing Tuesday's attacks to the Persian Gulf war, Foster pointed to the oil embargo of 1974 as the only time home sales came to a standstill.

"We were a very young company and I had just opened a fourth new office in Springfield [Va.], and we were borrowing cars to show houses," he said.

"People stopped buying houses for three months," he recalled. "It scared us to death."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.