Memphis mortgage banking 2013: Rising interest rates will change, not dampen market

Published on: November 29, 2013

Rob Robertson, Memphis Business Journal

Paraphrasing the immortal words of former NFL head coach Dennis Green: The local mortgage market in 2013 is what they thought it was.

Mortgage lenders in Memphis were tempering expectations for 2013 back in 2012 – which turned out to be a very promising year – when it became apparent that interest rates were going to have to start rising again as the economy recovered.

In Memphis, mortgage originations jumped to 30,253 in 2012, the last year complete data is available from the Federal Financial Institutions Examination Council. The number represents a 38 percent increase from 2011.

Mortgage originations in the Memphis market had been declining since 2009 and had not eclipsed 30,000 in a single year since the pre-crisis days of 2007.

But all that has already begun to change, as the latest data from some of the area’s top community banks shows.

“The first half [of 2013] was real good and we had a great spring,” says Keith Barger, who oversees mortgage lending at $268 million Patriot Bank in Millington. “Around June we saw the effect of rate increases that tempered demand somewhat. Going into the fourth quarter there has been a fairly big drop in purchase requests.”

Even so, purchases are where the market is going.

The Mortgage Bankers Association is expecting mortgage rates to increase above 5 percent in 2014, and then increase further to 5.5 percent by the end of 2015. As a result, home purchase originations are likely to increase in 2014 due largely to gains in home sales and home prices, even as total originations fall as refis tail off.

The MBA is predicting that purchase originations will increase 9 percent nationwide to $723 billion in 2014, up from $661 billion this year. In contrast, it expects refinances will drop 57 percent to $463 billion, from $1.08 trillion in 2013.

Memphis does not look to be an exception to this dynamic – but that’s not necessarily a bad thing.

“Volume may go down, but we’re getting more sales and that is ultimately what you’re looking for,” says John Byrd, a founder of the Bank of Bartlett and CEO of Bartlett Mortgage. “Refinance booms are nice and they’re profitable, but they come and go. That steady business of sales is what you’re looking for.”

Scott Stafford, president and CEO of $273 million Evolve Bank & Trust, has more of stake in national mortgage trends than most community bankers in Memphis. Evolve is different from other banks on the Memphis Business Journal’s Mortgage Lenders List because in addition to its retail banking operations in the Memphis market, it also operates more than a dozen loan production offices in 11 states.

“This year has been very steady with increases in new-purchase business as rates have increased,” he says. “We think the purchase market will continue as there is still a tremendous value in the marketplace with rates under 5 percent.

“As we move into 2014, we look forward to a strong buying season next spring,” Stafford adds.

Still, reports of the death of refis may greatly exaggerated and rising home prices in the Memphis market may provide something as a soft landing.

The average sales price for a home in the Memphis market rose 10.2 percent to $142,738 in September, according to the latest update from the Memphis Area Association of Realtors.

Sales volume year-to-date also increased more than 21 percent to $1.78 billion.

“It is encouraging to see pricing up so much from this time a year ago. That’s good for sellers,” says MAAR President Regina Hubbard. “But interest rates are still pretty good for buyers so the market is staying in balance.

John Loebel, head of the mortgage division at $335 million Financial Federal Bank in Memphis.

“Rates are still pretty good – they’ve crept up a little bit, but historically are still very low,” he says, adding that his bank is looking to book about $100 million in single-family mortgages for 2013.

“I don’t expect too much of a drop-off next year; maybe with refis, but not too much overall,” he says. “With housing values creeping back up that helps with refis, which may help keep those volumes from dipping badly.