Mortgage banks face leaner years

ORLANDO, Fla. — The last four years will likely be remembered as a gilded age for anyone in real estate, especially mortgage bankers. But with interest rates rising, the industry is preparing for a slowdown that may prompt some lenders to merge with their competitors.

Consumers may be winners from the mortgage banking industry’s scramble for customers in the months ahead of this anticipated consolidation. Home buyers are already seeing lenders cutting loan fees, and some lenders are willing to offer lower mortgage rates even if it takes away from their profits.

“Companies are losing money to keep market share,” said Douglas Duncan, chief economist at the Mortgage Bankers Association (MBA). “The consumer is being subsidized because the competition is so fierce. For the short run, the consumer is getting a better deal.”

Once that period of consolidation and mergers is over, consumers are unlikely to get such a good deal. There won’t be price gouging after a merger wave, but fees probably won’t be slashed as much as they are today, Duncan said.

At a mortgage banking industry convention in Orlando this week, many executives were clearly worried, with rising interest rates eating away at demand from consumers looking to buy homes or refinance existing mortgages. Some said companies will need to make themselves leaner by cutting staff — or find merger partners. More than one executive voiced concerns about shrinking profit margins.

Lenders expect to process $2.26 trillion of home loans next year, down from this year’s expected $2.78 trillion and sharply lower than 2003’s record of nearly $4 trillion worth of loans processed.

“As rates move up there’ll be more consolidation, mergers and people leaving the business,” said Ray Morris, a director of business development at GMAC Mortgage Corp.’s subservicing business. “We’re a scale business and companies that do large scale business survive.”

Over half the loans made directly to consumers are arranged by loan brokers with some 8,500 lending companies or mortgage banks. The thinning in the industry’s ranks is expected in all levels, particularly brokers who have been attracted to the industry by its rapid growth.