Navigating Rough Waters Ahead

Mortgage industry employment will come to a halt during 2007, according to Frank Nothaft.

Only 1.7 million U.S. jobs are expected to be created next year, down from a normal level of 2 million, the economist told participants of the Equifax Webinar, Mortgage Matters: Closing In on Industry Trends.

But none of the job creation will come from the mortgage industry.

In addition, the real estate finance industry itself can expect to see more consolidation.

Mortgage markets “will be busy” even though 2006 volume is down 13 percent from 2005 due to a drop in refinances, Nothaft contends. He noted that the motivation for 88 percent of all refinances today is cash out, with the remainder due mainly to adjustable-rate mortgage increases.

And although the housing market is cooling down — home sales are down eight to 10 percent from last year — purchase money volume will remain strong, he said.

Nothaft also predicted 2006 would prove to be a record year for equity volume extracted, which could explain the amount of consumer spending that has helped maintain economic growth and a drop in credit card delinquency rates.

Another factor important to lenders is that almost $1.2 trillion in total ARM debt is about to adjust in 2007, with $500 billion of that in first-lien mortgages, he said.

Investor and second home mortgage volume is high, almost doubling since 1999 he said.

The risk is greater because the investor does not live in the home, Nothaft noted. “Those are the first to pull out of the market.”

Overall, the biggest risk to the economy appears to be volatile energy costs.

“A big risk to the outlook is what will happen with oil prices … we are seeing record levels of nominal oil prices,” he said, noting that high energy costs act like a tax on the economy and “saps” consumer spending.

Inflation adjusted oil prices are below 1980 levels, but if oil rises to $100 a barrel — it could push inflation and unemployment higher, he said. Nothaft said these higher levels could be “sufficient to push the economy into recession,” but reaffirmed that he does not “expect” this to happen.

Lenders should maintain contact with existing borrowers and provide better service than their competition to remain competitive, Nothaft advised.

Mortgage bankers also need to develop “a tightly integrated solution set around the value chain,” gain speed without sacrificing quality and refine skill and focus on customer retention, Equifax executive Tom Madison added — noting how Equifax saved a lender 25 percent by bundling a prospecting list, tri-merge credit data and settlement services in one package.