Wednesday, September 26, 2007

Home purchases decline last week

Home purchases decline last week
Borrowing costs jump on 15-, 30-year loans, dive on adjustables
Wednesday, September 26, 2007

Applications for home-purchase loans dropped significantly last week as long-term interest rates climbed higher, the Mortgage Bankers Association reported today.

The market composite index, a measure of total mortgage application volume, was down 2.8 percent on a seasonally adjusted basis from mid-month, according to MBA. Leading the decline was a 7.3 percent drop in the index that tracks purchase loans, despite a 3.3 percent increase in the refinance index.

Interest rates on long-term loans increased for the second straight week, MBA reported, with the average contract interest rate on 30-year fixed-rate mortgages last week rising to 6.38 percent from 6.29 percent the week before and the 15-year fixed rate jumping to 6.06 percent from 5.99 percent.

The rate on one-year adjustable-rate mortgages (ARMs), however, tumbled to 6.09 percent from 6.39 percent during the period.

Points, which are loan-processing fees expressed as a percent of the total loan amount, averaged 1.15 on the 30-year loans, 1.12 on the 15-year, and 0.93 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the uptick in refinancing activity boosted that segment's market share to 46.4 percent of total applications, up from 43.5 percent at mid-month. Despite the strong decline in the one-year ARM rate, the adjustable-rate share of applications dipped to 12.2 percent from 12.6 percent.

The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

***

Friday, September 14, 2007

Falling home prices could dent economy

CAPITOL REPORT, Courtesy of MarketWatch

Consumers will be poorer, and probably won't spend as much
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) - Just as rising home prices helped fuel the economic expansion of the past six years by making people wealthier, falling home prices could put a big dent in economic growth in the next few years by making them poorer.
At this point, few economists expect the economy to sink into a recession, but almost all of them agree that consumer spending would slow, perhaps significantly, if home prices were to fall.

With the number of excess homes rising amid falling demand, the negatives in the housing market will "continue putting downward pressure on prices," said Seamus Symth, an economist for Goldman Sachs, who says home prices were plunging at a 9% annual rate in the most recent data. Goldman expects home prices to fall 7% this year and another 7% next year.

The path of home prices could be the key to whether the economy grows or stalls.
"A big issue is whether developments in the relatively small housing sector will spread to the large consumption sector, perhaps through declines in house prices," San Francisco Federal Reserve Bank President Janet Yellen said in a recent speech. "Should the decline in house prices occur in the context of rising unemployment, the risks could be significant."

Economists are forecasting that home prices will decline more than 5% this year and nearly 4% next year, according to the latest survey by Blue Chip Economic Indicators. Those same economists expect consumer spending to slow from 3.1% last year to 2.8% this year and 2.3% next year.

While a cumulative 8% drop in home prices (after nearly doubling in the previous six years) doesn't sound so ominous, such a decline would be the largest since the Great Depression.

Sticky home prices

Because most owners are reluctant to sell at a loss unless they are forced to, it's extremely unusual to see nominal home prices fall. In economists' jargon, home prices are "sticky" on the downside, but not on the upside.

By comparison, prices in the stock market adjust quickly to new perceptions about values, as investors take their losses and move on. During market corrections, the volume of shares traded doesn't fall, because the market quickly finds a new equilibrium between supply and demand.

The housing market is completely different. Sellers don't quickly adjust their prices to a new market reality. And because prices don't fall to bring demand into balance with supply, the volume of houses sold plunges during a correction. Home sales are now down 23% from the peak more than two years ago. The housing market can take years to find an equilibrium. In most housing corrections, sales remain very weak until excess supply is worked off. Prices can be flat for years.

So why are prices falling now? There's every reason to believe that supply and demand are getting even further out of balance. The number of vacant homes is at a record level, and more new homes are coming on the market every day. Foreclosures are rising, further increasing supply. More adjustable-rate mortgages will reset to a higher monthly payment in coming months, pressuring more homeowners to sell or default.

At the same time, the rationing of credit is reducing demand. The subprime and Alt-A mortgage markets, which represented about 40% of mortgages last year, have almost completely dried up. Lenders are increasing their standards for approving a loan, and interest rates for jumbo loans have risen substantially.

The wealth effect

The difficulties in the mortgage market will not only depress home sales, it will also reduce consumer spending. In recent years, consumers have taken advantage of the mortgage market to withdraw and spend some of the equity they've built up in their homes,

"We've given people the ability to spend more, and it's going away now," said Paul Kasriel, chief economist for Northern Trust.
Economists can't agree on how much spending has been boosted by mortgage-equity extraction, also known as MEW.

Some theorize that each additional dollar of wealth (from appreciation in assets such as housing or stocks) boosts spending by about 3 cents. By that account, the $8.1 trillion gain in real estate values since 2001 added about $243 billion to consumer spending over those six years, an insignificant amount compared with the $46 trillion they've spent.

But other economists say extra housing wealth is more likely to be spent than extra stock market wealth. Former Fed chairman Alan Greenspan and Fed economist James Kennedy concluded in a study published in 2005 that consumers spent about half of what they took out of their homes, and invested the other half in home improvements.

According to Kennedy's unofficial Fed data, consumers have taken $2.2 trillion in equity out of their homes though refinancing their mortgage or through a home-equity loan since 2001.

MEW has been slowing for more than a year now and was only half as big in the first quarter as it was in 2005. The Fed will report on second-quarter MEW next week, but remember those numbers will be from before the credit crunch hit in August.

"To the extent that MEW has been dying, it is now officially dead," said Alec Crawford, a mortgage-backed securities analyst for RBS Greenwich Capital.
Households will also be hit with another piece of collateral damage from the credit crunch, Kasriel said. Cheap credit not only fueled the housing boom, it also fueled the leveraged buyout boom. Corporations have also been borrowing money so they can buy back shares from individuals.

In the past six years, corporations have bought back $1.3 trillion in shares, mostly from the household sector. The credit crunch will probably mean corporations will be buying fewer shares from households, at least for a while.

Relenting already

"Consumers are already relenting," said Mark Zandi, chief economist for Moody's Economy.com. With home prices falling, gas and food prices rising and job growth flat, "there's nothing supporting consumer spending at this point."
Sales of some durable goods have already fallen. "There's no purchase that's more discretionary than a Harley," Kasriel said.

The consumer is facing other headwinds too, of course. Energy prices and food prices are cutting into disposable incomes.

Job growth will be the wild card. There's already been a significant slowdown in hiring, but job losses have been scant. Jobless claims are flat.

"By far, the biggest risk is if businesses get skittish about hiring," said Zoltan Pozsar, an economist with Moody's Economy.com. "Consumption can chug along as long as people keep ahold of their jobs."

Rex Nutting is Washington bureau chief of MarketWatch.

Thursday, September 13, 2007

Mortgage rates drop swiftly this week

Borrowers facing resetting rates hope lull will offer refi opportunity
Thursday, September 13, 2007

Inman News

Long-term mortgage rates dropped considerably this week following the release of August's dismal employment report, according to surveys conducted by Freddie Mac and Bankrate.com.

In Freddie Mac's survey, the rate on 30-year fixed-rate mortgages fell to an average 6.31 percent from 6.46 percent last week, and the 15-year fixed rate declined to 5.97 percent from 6.15 percent. Points, which are fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.5 and 0.4, respectively, on the 30- and 15-year loans.

Adjustable-rate mortgages (ARMs) also saw a drop in rates, as the five-year Treasury-indexed hybrid ARM was down at an average 6.17 percent from 6.32 percent a week ago and the rate on one-year Treasury-indexed ARMs sank to 5.66 percent from 5.74 percent. Points on the five-year and one-year loans averaged 0.6 and 0.8, respectively.

"Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home."

In Bankrate.com's survey, fixed mortgage rates plunged this week to four-month lows, with the average conforming 30-year fixed mortgage rate falling to 6.28 percent. Discount and origination points on these loans averaged 0.43.

The average 15-year fixed-rate mortgage popular for refinancing dropped by the same amount to 5.96 percent, according to Bankrate.com. Adjustable mortgage rates were lower as well, with the average one-year ARM inching lower to 6.2 percent and the average 5/1 ARM retreating to 6.3 percent.

Mortgage rates plunged following last Friday's lackluster employment report, Bankrate.com reported. Poor job growth figures raised concerns about economic health and helped push mortgage rates to the lowest point since May 2. Nervousness about the economy often drives investors toward the safe haven of Treasury securities, pushing both bond yields and mortgage rates lower. Rates for jumbo mortgages -- those above $417,000 -- declined by a similar amount, settling at 7.2 percent. While the spread between jumbo and conforming mortgage rates remains uncharacteristically wide, this spread has stabilized in the past two weeks.

Amid the turbulence in mortgage markets, fixed mortgage rates are still an attractive option for borrowers. Just two months ago, the average 30-year fixed mortgage rate was 6.82 percent, meaning that a $200,000 loan would have carried a monthly payment of $1,307. Now that the average conforming 30-year fixed rate is 6.28 percent, the same $200,000 loan carries a monthly payment of $1,235.

The following is a sampling of Bankrate.com's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York - 6.31 percent with 0.28 point

Los Angeles - 6.41 percent with 0.66 point

Chicago - 6.31 percent with 0.13 point

San Francisco - 6.25 percent with 0.7 point

Philadelphia - 6.31 percent with 0.36 point

Detroit - 6.28 percent with 0.09 point

Boston - 6.38 percent with 0.22 point

Houston - 6.17 percent with 0.7 point

Dallas - 6.18 percent with 0.54 point

Washington, D.C. - 6.25 percent with 0.62 point

***

US 30-. 15-year mortgage rates lower

Thu Sep 13, 2007 11:36AM EDT

WASHINGTON (Reuters) - Average rates on U.S. 30- and 15-year mortgages fell in the latest week, mortgage giant Freddie Mac said in a survey on Thursday.

U.S. 30-year mortgage rates averaged 6.31 percent, down from 6.46 percent last week, while 15-year mortgages averaged 5.97 percent, also lower than 6.15 percent a week earlier.

One-year adjustable rate mortgages fell to an average of 5.66 percent from 5.74 percent last week.

Freddie Mac also said the "5/1" ARM, set at a fixed rate for five years and adjustable each following year, averaged 6.17 percent compared with 6.32 percent last week.

A year ago, 30-year mortgages averaged 6.43 percent, 15-year mortgages 6.11 percent and the one-year ARM 5.60 percent. The 5/1 ARM averaged 6.10 percent.

"Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

"The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home," Nothaft added.

Freddie Mac said lenders charged an average of 0.5 percent in fees and points on 30-year mortgages and 0.6 percent on the 5/1 ARM, both unchanged from last week.

They charged 0.4 percent on 15-year mortgages, down from 0.5 percent a week ago, and 0.8 percent on the one-year ARM, up from 0.6 percent.

Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.

Wednesday, September 12, 2007

Home-loan denial rate rose in 2006

WASHINGTON (Reuters) - More Americans had their home loan applications turned down in 2006 than a year earlier, although the majority continued to be approved, according to a report issued on Wednesday by financial sector regulators.

"Overall, the denial rate for all home loans in 2006 was 29 percent compared with 27 percent in 2005," a report by the Federal Financial Institutions Examination Council (FFIEC) said.

Nearly 8,900 lenders accounting for about 80 percent of home lending nationwide were covered by the survey.

The FFIEC includes governors of the Federal Reserve as well as the Federal Deposit Insurance Corp., National Credit Union Administration, Comptroller of the Currency and Office of Thrift Supervision.

They gather information that lenders are required to disclose under terms of the Home Mortgage Disclosure Act (HMDA) and analyze it to determine fair lending laws are met including requirements that lenders not discriminate by race.

In 2006, denial rates were generally higher for refinancings and for home-improvement loans than for home purchases, the FFIEC said. It attributed the difference to the fact that consumers buying homes faced more counseling and prequalification so that they were already screened before the loans were issued.

It also said denial rates were lower for government-backed loans than they were for so-called conventional loans, but were "especially high" in the case of applications to buy manufactured homes.

The FFIEC said that in 2006, as in the two prior years, black and Hispanic borrowers were more likely, and Asian borrowers less likely, to be offered higher-priced loans and that held true for both refinancings and home-purchase loans.

It found little difference in loan prices by gender.

Tuesday, September 11, 2007

Rise forecast in company default rates

By David Oakley, Financial Times

Published: September 11 2007 22:51 | Last updated: September 11 2007 22:51

Company default rates are forecast to rise nearly 300 per cent as the credit squeeze hits the wider economy and raises the prospect of a global recession.

Moody’s Investors Service warned that default rates among high-yield-rated companies – one of the best indicators of the health of the world economy – will rise sharply because of the turmoil in the money markets.

Mark Zandi, chief economist from Moody’s economy.com, said: “We may be in a recession in the US right now, although not in a technical sense as the downturn would have to last a few months. And if we aren’t in recession, the risks are as high as they have ever been since the last recession in 2001,” he said. “The subprime and money market problems have been a major blow to the US economy, undermining the already very fragile housing market.

“The risk is that this will hit consumer spending and business confidence.”

Moody’s predicts that the global speculative-grade default rate will rise from 1.4 per cent – meaning only 1.4 per cent of the companies rated have defaulted in the past year – to 4.1 per cent in a year’s time and 5.1 per in two years’ time.

Moody’s said Wednesday’s figure of 1.4 per cent was a 20-year low and showed that companies had so far stood up well to the recent volatility.

However, if the US slipped into recession, this figure could approach the all-time highs of about 12 per cent, last seen in 2001 after the dotcom crash and in the early 1990s when inflation spiralled out of control in both Europe and the US, economists said.

Willem Sels, head of credit strategy at Dresdner Kleinwort, said: “We believe there is roughly a 40 per cent probability that the US will go into a recession, so it is essential that the money market problems are solved quickly. If they aren’t, the probability of recession could rise further, with negative implications for the markets.” Although US and European companies had weathered the storms so far in the money markets, default rates are certain to rise as it becomes more expensive to refinance debt in a tougher market place where investors are demanding higher interest rates or returns to buy debt.

Andrea Zazzarelli, associate director of European default research at Moody’s, said: “The problems in the money markets will put companies at risk as they are facing higher costs to refinance debt. Those with strong balance sheets can still do so, but the weaker companies may be forced to default.” In Europe, the default rate stands at 2.9 per cent, compared with the US default rate of 1.4 per cent.

Libor hits high on cash rush

By Joanna Chung, Financial Times

Published: September 11 2007 22:35 | Last updated: September 11 2007 22:35

The cost of funds in the hard-hit interbank money markets hit peaks not seen for nearly a decade on Tuesday as the scramble for cash by financial groups showed little sign of easing.

An important borrowing benchmark for investors, the three-month London interbank offered rate (Libor), climbed to 6.90375 per cent in the sterling market, up from 6.89625 on Monday, leaving it 115 basis points above the Bank of England’s base rate of 5.75 per cent and at the highest level seen since November 1998.

The continuing rise of the three-month sterling Libor rate that is used by many financial institutions to fund their portfolios of securities, underlines the high demand from banks to secure liquidity for the next three months coupled with their efforts to hoard cash amid the squeeze in the credit and money markets. The problem could get more pressing given the large volume of asset-backed commercial paper due to expire in coming weeks.

The London money markets are expected to witness a spike in the volume of ABCP that is maturing on September 17, with much of that paper needing to be refinanced on Thursday, since it typically takes two days to settle ABCP notes. If the notes due to expire for the entire month – estimated to be worth a combined $160bn in the sterling, euro and dollar ABCP markets – are not rolled over, this will force the banks to extend liquidity lines to many ABCP borrowers, a prospect that has encouraged banks to hoard liquidity.

The European Central Bank on Tuesday confirmed plans to inject extra funds into the three-month money markets this week. Last week, the Bank of England said it would move to ease the pressure on overnight interest rates by supplying up to £4.4bn worth of additional funding on Thursday if needed. The ECB and the US Federal Reserve have in recent weeks taken repeated steps to ease pressures in the money markets.

The overnight money-market rates on Tuesday remained close to the ECB’s refinancing rate and the Fed Funds rate targets. However, Marc Ostwald, strategist at Insinger de Beaufort, said three-month rates in all three markets were abnormally high.

“Central bank liquidity provision is keeping overnight rates in check, but term money rates are still extremely high due to hoarding of liquidity by large commercial banks to ensure that they can cope with the demand,” he said. “There is a lack of confidence among lenders amid fear of what skeletons there are to come out of the cupboards of those institutions they are lending to.”

Friday, September 07, 2007

Jobs report puts mortgage rates in free-fall

Friday, September 07, 2007

By Lou Barnes
Inman News

Rates are in free-fall on news of an outright decline in August payrolls, and big downward revisions of the June and July reports.

Agency conforming mortgages are down to 6.25 percent, jumbos still sticky near 7 percent, and no change in availability: high-quality Alt-A still very pricey, as is any high-LTV lending.

I think the economic pattern is clear. For the last five weeks we have been in an uncontained credit crisis -- not a "liquidity" problem, but an evaporation of balance-sheet value exposing lenders, forcing fire-sales of collateral, and a sharp contraction of credit availability. The economic effects of this crunch lie ahead; it is far too soon for them to have undercut August payrolls, let alone June-July.

The payroll weakness is a separate event, a pre-recession signal all its own. Other data indicate considerable forward inertia in the economy, notably the twin surveys by the purchasing managers' association in August. However, a contraction in hiring is the definitive change, leading a general slowdown, leading layoffs, and marking the moment of diminishing inertia.

Now two strong forces will reinforce a third: the worst housing recession in a long time made worse by a credit panic; the credit panic spreading into a global affair far beyond mere mortgages; and the credit panic now getting its own shove from behind by an independently developing recession.

The Fed has either missed it all, misunderstood it all, or has no idea what to do about it. Yesterday's all-OK brigade of Fed speakers look ... say it: incompetent.

The Fed has tried for five weeks nothing but liquidity injections appropriate for a transient economic emergency, the '87 Crash, for example. This is neither a transient emergency nor a single-firm threat like LTCM in '98; we and the Fed have a systemic problem growing worse.

Examples: The president of the European Central Bank, Jean-Claude Trichet, last month announced its intention to raise its rate this month; yesterday he cancelled that intention and reduced forecast growth. One tough cookie in London, Holger Schmieding of BofA, said that Trichet made it clear that risks were far greater than the forecast reduction implied. Global risks: banks from Canada to Europe no longer trust each others' credit, bank-to-bank loan spreads widening toward lock-up.

The best indicator, the "TED" spread (short-term U.S. Treasury rates versus unsecured Eurodollar ones): Bloomberg reports opening to 2.4 percent, the widest since 1987 and on a percentage basis I think may be the widest ever measured.

What to do: As argued here, the only ways to stop a credit panic are 1) to let it burn itself out, 2) to mobilize government guarantee or re-underwriting transparency, or 3) cut the Fed's overnight rate as much as necessary, future inflation risk be damned, hoping to stay "ahead of the curve" but not too far.

#3 is all that's left, unless some #1 miracle should appear. #2 ... they don't have the brains or reaction time for.

So, in utterly self-interested glee, I am looking forward to the imminent rescue of housing outside the bubble zones, and a reduction of damage there. I don't know how deeply the Fed will have to cut its overnight rate (that will depend on the credit-panic/recession reinforcing spiral), but the 100-basis-point cut suggested two weeks ago by alert parties ... today looks like about half of what's coming.

It may take more weak data early in October to do the trick, but it is reasonable to expect fixed mortgages in the fives shortly, a boost to buyers and an escape for those who need a refinance escape. Better yet, ARM indices will drop tick-for-tick with the Fed, reducing re-set damage. Even though this rate decline may go deep, the advice here as always: take any deal that works, immediately.

If panic fades, the bond market and Fed will reverse in an instant.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

Wednesday, September 05, 2007

Darkest before the Dawn? Experts Call for another Year of Down Market

Courtesy of RISMEDIA:

By Eugene L. Meyer

RISMEDIA, September 5, 2007–Call it the perfect storm: Declining sales of new and used homes, huge inventories, price reductions, a credit crunch, and foreclosures. What seemed only months ago to be a long overdue and necessary correction, a return to a normal, more balanced market following years of giddy appreciation and home sales fueled by easy money, has turned sour, according to leading real estate industry experts.

And there is no soft landing in sight. Instead, the widely held view is that things will get worse before they get better.

“We’re going to have to live through the pain,” says Mike Bradshaw, Bank of America Senior Vice President for Realtor and Builder Mortgage Services. “We will unfortunately see more fallout of lenders. It will trickle down to both the real estate and the building industry.”

During the era of relaxed credit, many consumers who could not otherwise purchase homes were able to do so by making lower monthly payments for a period of time, after which interest rates and payments would dramatically increase. Such home buyers and the investors who bought such mortgage-backed securities counted on rising incomes and appreciation to offset any increases. While interest rates remained low, refinancing was also an option.

Over time, the number and percentage of such subprime mortgages rose. They were usually bundled and sold on the secondary market to investors seeking higher returns. But the risk was also greater. As the subprime market imploded, the fallout has spread to other sectors. Lenders have tightened eligibility requirements, not just to subprime borrowers but to others with good credit ratings. Jumbo mortgages, for amounts over $417,000, have become more difficult to obtain, with significant consequences for credit-worthy, upper-income buyers as well.

“The last 30 days have been kind of extraordinary, as you watch lenders exit the business and scaling back significantly on products,” says Bill Cary, executive vice-president and chief operating officer of Florida-based HFN, a division of Fidelity National Information Services that creates and manages mortgage companies for homebuilders and real estate firms. “Right now, the mortgage market is in a state of shock.”

“The fact that credit is tighter and not as available to as many people under the same terms will make it more difficult for individuals to get loans and could lead to further declines in the real estate market,” says James R. Panepinto, president of Pinnacle Professional Consulting Services, of Red Bank, New Jersey, which advises financial institutions, real estate firms and home builders. “Entire segments of the market have dried up for certain types of home buyers

“I think there’s plenty of blame to spread around, to the investor side of the business that bought the paper, the Wall Street firms that were securitizing the paper, the lending industry that was originating the paper. It’s clearly a situation where many participants were involved in extending credit on terms that were too generous.

“When the economy is strong and values are rising, there are pressures to increase home ownership from a lot of different stakeholders. Appreciation in the market certainly covers up a lot of excesses and practices in loan underwriting and origination. Clearly also in the market were instances where individuals or employees of lenders or various purchasing instruments ignored the rules that were there.”

The long-term good news, Panepinto believes, is that the “higher quality of [loans] being written and the tightening of standards should bode well for the market in general.” Eventually, he adds, “concerns about further deterioration in the quality of loans made, reflected in rising delinquencies and foreclosures, should ease off.”

How long will this take? Bradshaw estimates the real estate and mortgage industry is in for another 12 to 18 months of hard times. Then, he said, “There will be some stabilization and a healthier housing and lending market. The market will move forward on what’s better for the consumers.”

Large lending institutions, such as Bank of America, which retain and service many of their home loans, are faring better than mortgage brokers and others who sell their loans on the secondary market to securities firms, which in turn sell them to investors. The big banks are further cushioned because, having largely stayed out of the subprime market, they are not facing the need to foreclose on delinquent homeowners.

“We decided [subprime loans] were not prudent,” said Bradshaw, recalling a comment by Kenneth D. Lewis, his company’s CEO, that his institution is in the business of making homeowners, not taking homes back from people to whom it has extended credit.

The credit crunch has also affected new homes, with many builders canceling or ratcheting down projects they believe they could not now quickly sell. This, in turn, could have a domino effect, leading to layoffs in the large construction workforce sector.

However, cautions Panepinto, “Certainly, new home sales are very, very significant, but trends in existing home market are really the key thing to watch. Let’s remember that close to 90 percent of homes sold in this country are re-sales of existing homes. That’s really what drives the market.”

Says HFN’s Cary: “I think the light at end of the tunnel for everybody is when inventory gets back in line with demand. The markets have way of correcting themselves. This is not the first time we’ve gone thru a real estate downtown, and it won’t be last.”

The current crunch has underscored the importance for brokers of offering a multitude of core services to consumers, not just selling properties but also providing title insurance, home warranties, appraisals, and even mortgages. As with any investment portfolio, diversification can soften the blow if one sector falters, said Jeff Mandel, president of Prism Professional Solutions, a Charlotte, North Carolina firm advising financial services and real estate companies.

“Broker-owners used to like to talk about how it would be nice to have these value added services–such as mortgage, title, escrow,” Mandel says, “but the real estate market has slowed so rapidly, faster than brokers are able to shed fixed assets and expenses, that it’s absolutely essential.”

For brokers already facing lower revenues from declining sales, the credit crunch has hit hard. “Their need for positive returns out of these [other] services such as mortgages has never been more important to sustain their operations,” Mandel says. “But all of a sudden the money doesn’t exist in their mortgage operations. Many have seen either their partners go out of business or profits eroded to the point where they’re not deriving the returns expected or needed. The constituents I represent are having tough times…

“Number one, on the real estate side, companies need to buckle down, focus on their core strengths, make hard decisions to eliminate fixed overhead unnecessary for current market conditions, and apply fiscal discipline in ways not done before, to position themselves not only for today but for the future. They have to change what they can control.”

As with any economic upheaval, there will be winners and losers. While more than 100 mortgage loan companies have folded, large banks that have traditionally held onto most of their loans are getting more referrals from real estate brokers who had previously relied on less substantial lenders.

At J.P. Morgan Chase Home Loan Lending, loan originations are up 41 percent since July, and up 30 percent during the first two quarters of 2007, according to Sue Barber, senior vice-president for business development.

“We are seeing a good news story out of this current environment,” she said, “There is a very serious need for a lender who can still provide a full array of mortgage products, who has ability to directly lend as well as sell to the secondary market, a partner who has financial strengths and liquidity. Certainly we are receiving lot of inbound calls from lot of the national real estate companies, and there are a lot of the large regional independents reaching out to us.

“We are certainly happy Chase has the balance sheet and liquidity to fund directly, because conditions in the secondary market are challenging today. A lot has to do with the Chase brand. It signifies stability, financial strength. I think the consumer and real estate community are recognizing now more than ever they really need that. I think consumers are realizing they really want a long-term lending relationship.”

That is not to say that Chase hasn’t tightened its lending requirements. It has. “The main focus of all the tightening of credit standards we’ve done and the focus on strategy with sales force is to educate our consumers,” Barber said. “We are working on a simplified disclosure so customers completely understand how [their loan] works, how affects their monthly payments…

“I think the overall industry impact of tightening of credit standards will take some consumers out of the market. But tightening standards certainly will result in better performing mortgages and in turn have a more positive effect on the housing market.”

The subprime mortgage meltdown has had the paradoxical effect of bolstering some intermediary companies that can provide brokers with several lending sources.

“We run a multi-lender mortgage platform, so if you do business with us you’re not tied to just one lender or source of money,” said HFN’s Cary. “We have six [lending sources], including American Home Mortgage, which went bankrupt last month. We were able to take loans placed by our customers there and within a week we had those loans placed with other investors. So we were able to provide a solution.

“We kind of look at the market right now and say there are going to be winners and losers,” Cary said, “and we’re trying to become winners.”

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.