A home is the biggest purchase most Americans will ever make. But, with steadily climbing interest rates, there will likely be fewer companies to help Utah buyers take the plunge.
Though the sheer number of home mortgage lending companies has increased over the past five years, business in Utah appears to be slowing. That could spell trouble for some companies, especially those focused on helping clients with home refinancing.Rich Bailey, a former president of the Utah Mortgage Lenders Association, said mortgage lenders are having to tighten their belts.
"The real estate activity has slowed down, and the interest rates are higher than they've been in a couple of years," said Bailey, who is now senior vice president at New Freedom Mortgage. "The combination of the two has slowed down the mortgage business."
Figures provided by the Utah Department of Financial Institutions confirm steady growth in the number of mortgage companies registered with the department. In 1995, 794 mortgage lenders and servicers registered with the department. By 1999, that number had grown to 2,218.
But, senior examiner David Barker said it appears the brakes are on. This year, for the first time in at least five years, the number of registered companies may decline.
"This year, there may be a decrease," Barker said. "Since the year's end, due to interest rate factors, the mortgage process has slowed. As rates go up, fewer real estate transactions take place."
Certainly, fewer refinances take place.
"The more rates go up, the more people go out of business," he said.
The housing market is particularly sensitive to interest rates set by the Federal Reserve. And since June, the Fed has increased rates five times in an effort to cool the broader economy.
That makes it more difficult for people looking to buy or refinance homes, and for the businesses that facilitate those transactions.
"We're not as busy as we've been in other years, primarily because of the lack of refinancing business out there," The Lending Group co-owner Mike Koziar said. "But I'd say we're holding steady."
Koziar and partner Rory Hackett run a small, straightforward mortgage brokerage firm. They don't spend money on advertising, preferring to utilize referrals from the builders, real-estate agents and homeowners with whom they have worked. They don't handle a lot of the specialized loans larger mortgage lenders may offer. So far, they have had steady work.
But, both Koziar and Bailey said lenders -- whether mortgage broker, mortgage banker or institutional bank -- have had to pare their organizations down to their most important fundamentals.
"We're watching all of our expenses, and I think all the mortgage companies have cut back on their staff sizes," Bailey said.
He and Koziar said new clients are still coming in, but their companies have had to work harder to woo customers. These are lean times, with more than 2,000 companies trying to attract less business.
But UMLA president Kay Ashton said it is not time for industrywide panic.
"I think we are getting back into a more normal market," said Ashton, who is also vice president and Utah district manager for the Home Loan Corp. "For a couple of years, when we were hitting record-low interest rates, there were a lot of people refinancing. Because of that, I think many more people got into the industry. Now interest rates are going back up, and it doesn't make as much sense for people to refinance, I think there will be fewer people in the business. But I think that is just because we are returning to normal rates."