Lenders profit as property owners lock in low rates

HELPING HAND: Diane M. Crosby, mortgage loan officer at People's Credit Union in North Kingstown, helps Scott G. Kettelle, of Exeter, with information on current mortgage rates. / PBN PHOTO/ MICHAEL SALERNO
HELPING HAND: Diane M. Crosby, mortgage loan officer at People's Credit Union in North Kingstown, helps Scott G. Kettelle, of Exeter, with information on current mortgage rates. / PBN PHOTO/ MICHAEL SALERNO

Several Rhode Island banks saw strengthened lending portfolios this year, due to a healthier housing market, historically low interest rates and a perception that those interest rates will likely rise in 2017.

In October, first mortgages and refinances were both on the upswing at People’s Credit Union.

Its volume for first-position mortgages, including refinances, climbed to $5.9 million, compared to $1.9 million last October, said Chief Operating Officer Amy Martell. About three-quarters of the 2016 loan balance was the result of refinancing, she said.

Then came the Nov. 8 election of President-elect Donald J. Trump, triggering a quick rise in mortgage rates.

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The election of Trump was perceived by many investors as a sign that the economy will strengthen, leading to faster growth and higher inflation. He has promised to cut taxes, increase spending and reduce regulations, including those imposed under the Dodd-Frank Act, said Peter Nigro, a professor of finance at Bryant University.

The election initiated an immediate and fast rise in mortgage-loan interest rates, arriving sooner than the December Federal Reserve vote anticipated by many consumers.

All of that then created a flight to refinance or lock in mortgage rates.

In the days after the presidential election, the average for a 30-year, fixed-rate mortgage rose to 3.95 percent, up from 3.77 percent, according to the Mortgage Bankers Association, in a release. That rate is for conforming loans of $417,000 or less.

That’s the biggest three-day jump since June 2013, and put interest rates at their highest level since January, said David H. Stevens, president and CEO of the Mortgage Bankers Association.

The average mortgage rate for jumbo loans rose to its highest level since January. Rates for 15-year, fixed and 5/1 adjustable-rate mortgages also rose, to the highest level since March.

The markets are reacting to uncertainty over Trump’s fiscal policies, according to Martell and others in the finance industry.

The immediate, post-election rise in the mortgage rates, as well as concern that the Federal Reserve in December could increase short-term interest rates, helped to inspire quick movement among homebuyers and homeowners.

Whether the climate of rising interest rates continues, and begins to suppress mortgage applications, is unknown. If it continues, the rising rates will impact the housing recovery by pushing mortgage costs higher.

“It’s going to make them less affordable,” Nigro said.

Mary E. Noons, The Washington Trust Co.’s executive vice president for retail lending, said the impact of rising rates will depend on the level of the increases and a variety of local, national and global factors.

“Reasonable rate increases are a sign of an overall improving economy, which bodes well for job growth and increasing personal income,” she said, in an email. “Well-managed rate increases are expected and should not derail a healthy purchase market. Refinances will likely slow in a rising rate environment.”

In the week immediately following the presidential election, origination officers at People’s Credit Union were deluged with calls from people wanting to lock in mortgage rates.

“People are rushing to refinance or close on purchases because they are scared about further rate increases,” Martell said, in an email.

Whether a climate of rising interest rates will dampen enthusiasm for home purchases remains to be seen. Nationally, in the week following the election, mortgage applications decreased by 9 percent, according to a survey released by the Mortgage Bankers Association.

Rates have increased for five of the past six weeks, noted Stevens.

In Rhode Island, the immediate reaction was movement to lock in rates before they go higher. But also, applications increased, said Martell, a trend in apparent contradiction to the national survey.

“It’s really the market, it’s anticipation of rates going up,” Martell said.

For People’s, consumer-lending volume has been increasing for a year. The refinancing wave of 2014 to 2015 meant that home refinancing was a smaller share in 2016 than in previous years, but it was counter-balanced by stronger consumer loans for cars and personal loans, she reported.

Washington Trust as of mid-November was on pace for its best year of loan production in its 216-year history, reported Noons.

The increase is a combination of the resurgence in the real estate market and more of an effort on behalf of the bank to attract such business.

“It has been a combination of both; a top-quality team making the most of an increasingly healthy market,” Noons said. •

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