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April 15, 1994 - Image 38

Resource type:
Text
Publication:
The Detroit Jewish News, 1994-04-15

Disclaimer: Computer generated plain text may have errors. Read more about this.



O
O

Rising interest

rates force
mortgage firms

CI)

LI to try new
L-1 a , strategies.

38

R.J. KING
SPECIAL TO THE JEWISH NEWS

I

n the information age,
change is rapid.That
fact is not lost on the
mortgage industry,
where a sudden jump
in interest rates can
turn a once prosperous
firm into another hardship case
in bankruptcy court.
Since January, the average
area rate for a 30-year fixed rate
mortgage has jumped from 6.90
to 8.19 percent as the Federal
Reserve, which controls the na-
tion's money supply, seeks to
limit any further growth in in-
flation, which currently stands
at 3.0 percent.
When rates march forward,
the borrowing costs for every-
one from General Motors to po-
tential buyers touring new
homes goes up. Higher lending
charges also stifle the refinanc-
ing market, a catalyst of strong
growth for many mortgage

firms which popped up in the
early '90s when rates first
dipped below double digits.
With rates projected to rise
another half of a percentage
point or more over 1994, many
of these start-up companies, es-
pecially those which specialize
in refinancing, are facing seri-
ous challenges as the market
shifts from reducing costs on ex-
isting mortgages to writing new
ones.
By some accounts, new mort-
gages now make up 80 percent
of the industry, the rest refi-
nancing. This is a complete shift
from a year ago, when interest
rates were lower. As a result,
customers no longer line up out-
side lender offices to refinance,
and firms find they now have to
hustle up business by courting
real estate agents and prospec-
tive buyers.
`There are a lot of glass hous-

New mortgages, not refinancing, now dominate the industry.
falling rates would increase
es out there where mortgage
cash flow among homeowners,
firms specialized in the refi-
promote consumer spending
nancing market and never built
and spark a recovery. The plan
a realtor base. I think we're go-
worked. People who took on
ing to see a wholesale slaugh-
lower-cost mortgages or refi-
ter of firms going out of
nanced existing loans to less-
business," said Bob Rubin, pres-
expensive rates made lower
ident of Investaid Corp. in
monthly payments to their
Birmingham, which specializes
lending institutions.
in writing non-conforming
For the most part, the added
mortgages.
savings were plowed back into
"A lot of firms have people
the economy for household
with no overall training in the
goods from Builders Square,
mortgage market and they're
Sears or Home Depot. Others
going to go back to selling shoes.
used the savings to trade up to
Those who specialized in refi-
larger homes while first-time
nancing will drop out of sight.
buyers found the lower mort-
The tail of the dog always gets
gage rates were often less-ex-
caught in the door. If firms wait-
pensive per month than an
ed until now to enter the (new)
apartment.
purchase arena and court real-
Both buying trends fueled ex-
tors, it's too late. They're out of
tra
business for real estate and
luck."
mortgage offices, especially
When rates first dipped in
start-up firms. But the party
1990, the Fed was fighting a re-
cession. The theory was that
GEARS page 40

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