Analyst: Mortgages going down

by Brad Carlson @ Idaho Business Review

A slowdown in the housing market won’t lead to a meltdown in the mortgage market, according to an executive with mortgage giant Countrywide.
Home buying and refinancing will continue in a housing market that’s active but down from last year’s highs, William Berliner said.

Berliner is executive vice president of Countrywide Securities Corp. He spoke in Boise Sept. 20 at a Chartered Financial Analyst Society of Idaho luncheon meeting at the Owyhee Plaza Hotel.

“It remains relatively robust, despite the higher level of (interest) rates,” he said.

He’s optimistic despite Coutrywide’s mortgage production being down by about 25 percent from last year largely on fewer refinances.

“It’s a market that is trending downward, but is not by any means a bubble popping or collapsing,” Berliner said.

Mortgage defaults and home foreclosures should move higher. However, many homeowners can tap equity, and that should keep defaults and foreclosures well below levels from 2000 and 2001.

Berliner said defaults would mainly be seen on sub-prime loans issued to people with lower credit ratings.

One reason the mortgage market remains active despite higher interest rates is that borrowers are focused on payment choices, not just interest rates, Berliner said.

Borrowers are more comfortable with adjustable-rate mortgages now compared to a decade ago, he said.

About 75 percent of second mortgages are adjustable-rate, and 40 to 50 percent of “ARMs” are interest-only or pay-option, he said.

High-income borrowers continue to use the new products as cash-management tools, supporting demand, Berliner said.

The top 20 percent of wage earners drive mortgage production and pay the bulk of mortgage interest, he said. The top 40 percent of earners account for more than 70 percent of mortgage equity withdrawal. That’s a factor in his expectation that equity withdrawal will diminish but not collapse.

Home ownership has fallen recently among lower-income groups, said Berliner, who is based in Calabassas, Calif.

Cash-strapped borrowers who can make only minimum payments on the non-traditional mortgages run the risk of failing to maintain or build equity given higher interest rates, he said. However, “hybrid” mortgage rates remain below fixed mortgage rates.

Conventional fixed mortgages were used on 63 percent of purchases in 2003, compared to 42 percent last year and 37 percent in the first half of this year. On the refinance side, 47 percent of loans were fixed compared to 76 percent in 2003.


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