With mortgage interest rates plummeting, lenders of all stripes have had more refinance business than they know what to do with. But as the boom wanes, increased competition looms.
Banks have had plenty of challenges in 2020 including lower commercial loan demand, less net interest income in the ultra–low-rate environment, and higher credit costs as a result of the coronavirus pandemic.
But if there has been one silver lining, it’s in the mortgage department where loan volume has surged. Specifically, refinancing loan volume has exploded since the Federal Reserve in March dropped its benchmark lending rate to practically zero, reaching higher levels than perhaps any other time in history.
New Hampshire has certainly benefited from the trend. Through the first nine months of the year, financial institutions in the Granite State have seen $17.24 billion in total residential refinancing volume. It makes sense, considering that the mortgage data firm Black Knight estimates that total mortgage nationwide volume in 2020 could surpass a record $4 trillion, driven by record refinancing volume and the highest purchase lending volume since 2005.
One bank in New Hampshire that has done well is Meredith Village Savings Bank, a subsidiary of New Hampshire Mutual Bancorp (NHMB), which is also the holding company for Merrimack County Savings Bank and Savings Bank of Walpole.
Through the first nine months of the year, the bank processed 431 refinance applications for total volume of close to $111 million, according to data from The Warren Group, publisher of the Registry Review.
Carol Bickford, senior vice president and retail lending officer for all of NHMB, says the nine-month period of refinancing volume this year by far blows away any other comparable period.
“Residential has been the business of the year,” she told the Registry Review. “With the low inventory that we see, I think if rates stay low, we could still see good volume into next year. We are very busy with construction loans as well because there is not a lot of inventory, so they are building.”
Bickford said the bank didn’t need to do a lot of marketing or advertising to secure the business. In fact, the bank chose to actually keep its mortgage rates a little bit higher around 3% to slow volume, she said.
For the week ending Thursday, Nov. 19, Freddie Mac reported that the average rate on a U.S., 30-year fixed rate mortgage was 2.72 percent, while the average rate on a 5/1 adjustable rate mortgage was 2.85 percent.
Bickford has said she has seen some banks in the area – mostly larger banks and mortgage companies – bring their rates as low as the mid–2 percent range. According to data from The Warren Group, Quicken Loans, a subsidiary of the now publicly traded Rocket Cos., did more than $721 million of refinancing volume in New Hampshire through the first nine months of 2020, while Citizens Bank did more than $154 million.
To Hold or to Sell?
This high volume, according to Bickford, has also occurred as lending standards have gotten stricter.
Companies in the secondary market that Meredith Village typically sells their loans to have tightened their underwriting standards due to the pandemic. Additionally, lenders at the bank had to get creative with how they did appraisals because they couldn’t go into a lot of homes due to pandemic, she said. Yet, that didn’t slow down volume at all, showing just how strong demand has been.
Although Bickford said she thinks the volume can continue, she also believes that the environment will start to get more competitive. Banks have seen a flurry of deposits build up and now they want to deploy that cash.
As a result, Bickford said NHMB – at least in the near term – is planning to hold most loans on its balance sheet and will not be selling them into the secondary market. The bank is planning to look at offering mortgage products at more attractive rates, as well, to keep driving demand into next year, she said.
Bickford added that the bank has hired a new sales manager recently, who is going to make sure the bank’s lenders are continuing to interact with customers over email and through webinars that keep them educated on available products and market conditions.
“It definitely will get competitive. We’ve been reactive this year with the business coming through the door,” she said. “We know we will have to be more proactive in the future.”
