I have seen it all over the past 40 years, which is the only benefit of being 63.
In May 1986, after a huge six-month refinance boom, mortgage rates spiked from 6% to 8% in what felt like a week. Millions of Americans with 10% and 12% rate mortgages who applied for a 6% rate from March to May in 1986 didn’t get their loans funded until July through September because the lenders could not handle the volume. Rate locks expired because it was taking 60 to 120 days for an underwriter to approve the loan.
Every major news channel was covering the story that May.
I was a mortgage broker after working as a branch manager for Beneficial Finance Company from 1980 to the middle of 1985 and thought I could double my income if I quit my $60,000-per-year corporate job with medical benefits and become an independent contractor loan officer in my hometown, San Francisco. I had 19 loans pending that were scheduled to close escrow in June 1986 and back then, my commission on each loan was around $900. I promised my wife I would make more than $17,000 in one month and my dream of doubling my income would come true.
The bad news was my income stunk in 1986 but the good news was my wife didn’t leave me.
After fighting for my clients with my two favorite mortgage bankers to honor or at least negotiate the rate locks extensions, all 19 finally closed escrow by the end of September. The hard copy loan files were so abundant at the mortgage banks, they were stacked up to near the ceiling because they had 10 times too many for their file cabinets and scanners didn’t exist.
The human underwriter would need to personally sign every loan approval after three to four hours of auditing the loan application package and the appraisal. I would turn in a totally processed $125,000 super easy loan file to my favorite wholesale mortgage company and instead of the usual one- to two-week turn times, it became 60 to 90 days in underwriting.
Loan officers at all the different types of mortgage companies were overwhelmed with great business but the lenders didn’t have the human resources to handle this 1,000% increase in loan applications over the previous year.
There was a huge refinance mania from 1991 to 1993 that suddenly ended in 1994. There was another huge three-year refinance rush from 2000 to 2003 that abruptly ended in 2004 and because the mortgage companies were so flush with staff, money and resources, rather than lay off 100,000 processing and underwriting staff, they replaced legitimate refinance volume with the 100% loan-to-value stated-income loans and crazy adjustable-rate mortgage loans to stay afloat and keep the volume up, which caused the 2008 crash.
Tens of thousands of loan officers in California left the business from 2008 to 2012.
There was a small refinance boom in 2012 and again during Brexit in 2016, but these little ones were nothing in comparison to the sub-3% fixed-rate pandemic-induced refinance rush between May 2020 and December 2021. My team was working 60 hours per week for months while teaching our kids on Zoom and working remotely and although we were very distressed with people getting sick, we had to take care of our past and new clients, just like Travis Credit Union and Valley Strong tried like heck to serve their members.
The moral of this story is that mortgage volume across America is down way more than 60% from the same time last year and the business is now 85% purchase and only 15% refinance. Loan officers and mortgage companies that haven’t seen the ups and downs and are not prepared for this market will be in a heap of financial trouble. Loan officers who were 100% refinance business will not be making two or three times what a doctor, the local police and fire chief makes in 2022.
The strong, ethical and financially stable great lenders will survive but the refiance party is over for now.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
