Mortgage Market Share Report- July 2010

?Laughter and tears are both responses to frustration and exhaustion. I myself prefer to laugh, since there is less cleaning up to do afterward.?

~ Kurt Vonnegut

Last month I suggested here that due to the refinance boom the number of recorded mortgages in our market was headed towards 2004-2005 levels. My prediction was based upon a combination of real data?our order counts and market share?and anecdotal information gleaned from conversations with clients. In retrospect, this led to a faulty analysis of the type once characterized by Alan Greenspan as ?irrational exuberance.?

I now believe that the local mortgage finance business is operating pretty close to full capacity. I included a chart this month that depicts recorded mortgages per working day for each month this year. (Since a month can be anywhere from 18 to 23 working days, some stats are useful to compare on an average per day basis.) The number of mortgages recorded each of the last three months has been nearly identical on a working day basis. This occurs despite the fact that according to many of our clients and national statistics, the number of new mortgage applications has increased substantially during this time frame. Within our own shop, the number of transactions that we close has barely changed over each of the last five months. This level of consistency for this long a period is unprecedented in my years in the business.

The nineteen or twenty mortgages closed on average each day is down considerably from the twenty-nine or thirty mortgages recorded daily during a similar period of refinance mania in 2004. During that year, our report included 51 mortgage lenders. Now our report includes only 35 lenders. The Indy Star reported that the number of licensed mortgage brokers and loan originators in Indiana has declined 73 percent since 2005. It?s clear to me that the capacity of the origination business is contracted. A few of our clients are adding to staff with limited term employees. As a result, production may increase some. No one though appears to be committing to additional permanent staff.

As for the purchase market, stories are now appearing in the media that home sales declined considerably since the expiration of the federal homebuyer tax credits. Why this is surprising to anyone completely escapes me. I included a couple of charts this month that show recorded deeds for each month this year and also recorded deeds for each of the last seven Julys. Unfortunately the performance of our local market is no better than what?s being reported nationally. Early August statistics that I checked confirm the trend.

So we?re all working near capacity but not producing nearly the results as in years past. Demand for mortgages is high but the regulatory overhead is retarding the process. Tighter and more arbitrary underwriting standards are also restricting production.

No doubt the talking heads will be genuinely surprised once that becomes clear to them.

~John Bethell