Freedom Mortgage CEO Stan Middleman was quoted in the recent National Mortgage News Article, “Fourth Quarter Business Depends on the Fed”. An excerpt from the article:
Interest rates have retreated downward from their spike in the late spring and summer but the impact of that has “not been overwhelming yet” for mortgage bankers, said the CEO of Freedom Mortgage.
Still, said Stan Middleman, lower rates will prolong the dominance of the refinance business which has been a major source of originations through the fourth quarter.
While lower rates have not rekindled the refi boom, it will allow consumers who have yet to take advantage to be able to do so, he said. Given the Federal Reserve’s implying that it is likely to taper in the not-too-distant future, Middleman said rates could rise before the end of this year.
“Of course all of this is subject to what the Fed does, because the natural cycle has little impact. Most of what happens with interest rates really is Fed dependent,” he explained. “The net effect of that would be that as interest rates rise, before the stay of execution on the tapering, we will still see some significant layoffs.
“Volume is down, even at these (rate) levels relative to this time last year, even relative to 2Q13. I think we will see lower volumes and tighter margins as companies continue to compete,” Middleman said.
Freedom Mortgage has “trimmed back and retooled,” but has not made any massive layoffs at this point, unlike some companies. In the last 12 months it has done $17 billion, but right now it is averaging $1 billion per month. There has been “some retrenchment, but not a vast amount,” he said. But there will be tightening in the industry (including at Freedom) in order to “meet the market.”
Already there has been a lot of margin compression by firms looking to keep their volumes up, Middleman noted. Last year was the best margin year in the history of the industry and some of that euphoria spilled over into the first quarter. But now, margins are far tighter.
Traditionally in the hunt for business, the next move is to loosen underwriting. While things are loosening, it may have less to do with hunt for volume and more with the improvement in property values, he said.
Companies have reduced overlays originally aimed at declining value conditions. We are returning to “a more normalized credit standard,” Middleman said.
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