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During the first quarter of 1999, of the total loan
applications taken, 54% were refinance applications.
By August of 1999 of all loan applications taken,
those that were refinance applications dropped to 16%
while the total number of loan applications taken was
down by only 8%. Compared to the prior year refinance
applications were down 72% in only four months.
However, many loan originators were complaining about
how much the market was down. The market wasn't down.
Refinances were down and too many loan originators
were too dependent on refinances. April of 2001, 51.7%
of all loan applications were for refinancing. Look at
your pipeline to see how much exposure you have to the
same type of market correction.
Look at the charts, and think with a very open mind
where the economy and housing markets are headed. In
the last quarter of 1999 many in the stock market
thought the market would continue to go up. I remember
some calling for NASDAQ 10,000!
The challenge that we saw from 1995 to 1998 was that
many mortgage professionals completely abandoned their
key relationships with professionals to pursue
refinance opportunities. When rates began to increase
in 1999, many mortgage companies (one out of three)
that became too dependent on refi's simply had shut
their doors. We witnessed this same cycle in the 1994
market. For those new to the mortgage business, you
possibly have not experienced these types of cycles
before. It's amazing how so many in the mortgage
industry continue to make the same macro mistakes. How
many swift blows to the head do they need to finally
get the message?
Mortgage professionals that continued to grow their
business year after year, do so in spite of the
interest rates, refinance or housing cycles. Grasping
at refi's and abandoning what they were doing in the
past will turn out, in the long haul, to be a huge
mistake. I have recently seen many mortgage
professionals begin to abandon their purchase
marketing systems, systems that have been working
during the past 18 months and that will continue to
work after this refinance and positive housing cycle
has run their course.
If layoffs continue and if other countries' economies
begin to slow, consumers will not have as much
confidence as they do now to purchase homes. If
inflation or stagflation rear their ugly heads, the
Fed will use its "whipping stick" (interest rate
hikes) to keep either of those in check. I have been
preparing my clients for a possible "double whammy" of
rising rates next year combined with an exhausted
housing market.
You may have heard the joke "How do know when the
economy is in a recession or depression? It's a
recession when the neighbors lose their job; it's a
depression when you lose your job." In my
conversations with seasoned mortgage professionals,
many of them are aware that this positive interest
rate and housing market cannot continue forever.
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