As published in Scotsman Guide's Residential Edition, January 2005.
If you are a seasoned mortgage banker/broker, you might agree that diversification could mean the difference between long-term success and imminent failure.
The mortgage industry is cyclical. If you don’t agree with this statement, you simply haven’t been in our industry long enough to know this to be true. Some of us refuse to accept this statement, since we have been blessed with a long period of low interest rates and strong housing demand.
But, simply look to recent news reports of sharp declines in third-quarter mortgage refinancing activity reported by some top lenders:
Total refinancing volume at Countrywide plummeted 55 percent during the period, helping to sink total lending 27 percent to $92 billion. … “Mortgage banking earnings declined as refinance volumes retreated,” Angelo Mozilo, Countrywide's chairman and chief executive, said in a statement.
Reuters: Countrywide Posts 47 Pct Drop in Earnings-Wednesday October 20, 2004, 9:10 PM ET by Aleksandrs Rozensli>
SAN FRANCISCO (CBS.MW)-Washington Mutual reported a 34 percent drop in third-quarter earnings late Wednesday, citing in part a slowdown in mortgage refinancing activity.
CBS MarketWatch Last Update: Oct. 21, 2004, 9:36 AM ET by Carla Mozeeli
“The bottom line is interest rates are going to go up. They are going to go up sharply. The mortgage industry will go down and mortgage companies will get hit the hardest,” said Dick Bove, managing director for financial services at Punk Ziegel & Co.
Reuters: Mortgage Company Stocks Hurt by Higher Rate-Friday Nov 5, 2004, 11:55 AM ET by Aleksandrs Rozens
Historically, mortgage companies that exclusively chase after refinances end up “INSTA-Bankrupt” before they know what hit them. So, don’t be myopic. Diversify!
In our industry, diversification comes in many forms. One of the easiest and quickest ways is to simply add alternative, or niche, loan programs to your existing product mix. Although there seems to be plenty of new loan programs out there (reverse mortgages, neg-ams, etc.), it is important to separate the “fad” products from true niche markets.
Of the niche products available, some of the most interesting are the construction-related loan programs. This exceptionally promising $50-billion-a-year industry is largely underserved by mortgage lenders. Nationwide, construction lenders/brokers provide financing for a mere 10% ($5 billion) of the overall construction market. Small local banks and private investors capture a majority of construction financing. By adding construction loans to your company’s product mix, you expand your product offering and also open the door to an enormously uncultivated market.
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