After a tumultuous stock market performance in 2018 – especially during the last month of the year amid holiday celebrations – many banks’ mortgage rates steadily climbed last year while their mortgage loan volume did the opposite.
“In a word,” said Brian A. Azar, senior vice president and chief lending officer at Navigant Credit Union in Smithfield, the stock market’s behavior in the final quarter of last year can only be called “volatile.
“We had a nice upward trend during the first three quarters of the year and then saw some wild swings that erased all of the gains we had prior to Q4,” he said elaborating on the year-end impact.
Explaining Navigant does not normally release its mortgage-rate tracking data, he estimated ballpark figures for the company’s 30-year fixed mortgage started the year “hovering in the 4 percent range” then saw a “big jump” and ended June “closer to 4.5 percent.” The rate continued to “inch up” to 4.75 percent in Q3, he added, and “remained there” through the close of the year.
And comparatively, Rhode Island is in line with the rest of the nation. According to the November 2018 monthly report produced by Black Knight Financial Technology Solutions LLC, 30-year fixed-rate mortgage rates increased during the first half of the year and showed signs of falling in the latter half of December and early January. The December 2018 findings – as well as data reported by local lenders – confirmed the decline.
Azar is not alone, as many local lenders’ mortgage rates increased throughout last year.
Brian Gilpin, senior vice president and head of capital markets at Embrace Home Loans Inc. in Middletown, reported a similar increase for his 30-year fixed-rate mortgages in the first half of 2018 – starting below 4 percent and resting at 4.5 percent in midsummer. Gilpin said Embrace Home Loans’ rates continued to rise from June to 4.9 percent in early October before declining to 4.5 percent, where they rested in mid-January.
Of the early 2019 rate, he said, “It’s a little bit of a reprieve for folks … they can get a little bit more bang for their buck” with the recent decrease after the hike in late 2018.
‘We … saw some wild swings that erased all of the gains we had prior to Q4.’
BRIAN A. AZAR, Navigant Credit Union senior vice president and chief lending officer
The story was the same for mortgages secured by The Washington Trust Co. – beginning the year at 4.3 percent, rising to 4.6 percent by Q2 then 4.7 percent in Q3 and 4.8 percent by the end of the year – as well as Pawtucket Credit Union.
George J. Charette, president and CEO of the Pawtucket Credit Union, said the credit union started the year at a 4 percent mortgage-loan rate before it rose to 4.6 percent in March, 4.7 percent by June and 4.8 percent by September.
Charette said, similar to Embrace Home Loans, the credit union’s rate fell in Q4 to 4.7 percent.
As interest rates rose, more potential homebuyers thought twice about the investment, which led to some lenders seeing a decrease in the volume of mortgages secured in 2018.
For example, Washington Trust secured 2,426 mortgage loans in 2017 totaling $852 million compared with the 2,109 loans in 2018, which represented $762 million – a 13 percent decrease in volume.
“Clearly, there was a drop in mortgage volume,” said Mark K. W. Gim, president and chief operating officer of Washington Trust. “That being said … 2018 was the fourth-highest volume in our bank’s [more than 200-year] history.”
And Embrace Home Loans reported a 20 percent decrease in mortgage-loan volume year over year.
Contrary to Embrace Home Loans and Washington Trust, Pawtucket Credit Union saw a 24 percent year-over-year increase in mortgage-loan volume and Navigant Credit Union reported an 8 percent increase from 2017 to 2018.
After hitting a 13-year low of 29 percent in 2012, loans to purchase homes had grown to 64 percent of the total loans secured in 2018, according to Black Knight’s November report.
The tumultuous performance of the stock market last year, however, has the local lending community split about its impact on their profitability.
In October, Gilpin attended the mortgage bankers conference in Washington, D.C., where he encountered a sentiment that has followed him home and through the holidays.
“We’re all fighting over a smaller pie,” he said, as the interest rates increased and fewer individuals are interested in investing in a mortgage loan.
Citing a lack of inventory, Gilpin said the market’s performance has made it a “little challenging” for the sector over the second half of 2018.
A credit union employee, Azar feels differently.
“Profitability isn’t a strong driver for us” he said of the customers who locked in a lower rate earlier in the year before the rates climbed to more lender-friendly figures.
“Locking in mortgage rates is not a matter of profitability, it’s good business sense,” he added. “No one benefits from an 11th-hour surprise where you start the process at a lower rate and end with a higher one.”
While Gim predicts the Federal Reserve will raise interest rates this year, he said the jury is still out on how an increase would impact consumer borrowing rates.