While the New York City mortgage business hasn’t ground to a halt, brokers say that, consistent with the slower pace of home sales real estate agents are experiencing, they’re getting fewer calls.
“I’m still busy, but the thing is, you’re getting less calls with the same amount of deals,” said Frank Tamayo, senior loan officer at Trachtman & Bach Inc. Last year, “you’d get 10 to 20 people calling on the same property to get pre-qualified. Now you’re getting three or four [on the same property].”
The products consumers are opting for are changing, too. With interest rates approaching 7 percent, many home buyers are putting the breaks on adjustable-rate and interest-only mortgages and opting instead for traditional 30-year fixed-rate loans.
Narrowing the gap
By mid-July, interest rates on a 30-year fixed-rate loan, which are benchmarked against the yields on 10-year U.S. Treasury bonds, hovered around 6.7 percent, according to the Mortgage Bankers Association, while rates on one-year adjustables, which tend to be benchmarked by short-term interest rates, stood at roughly 6.3 percent.
With less than half a point difference between rates for adjustable rate mortgages (ARMs) and fixed-rate loans, the difference between what a buyer would pay on a fixed-rate mortgage and on an ARM can be negligible. On a $500,000 fixed-rate loan, which might carry an interest rate of 6.7 percent, the monthly payment would be about $3,225.
At a typical ARM rate of 6.3 percent, the payments drop only about $125 to $3,100. Because the spread is so narrow, many buyers are choosing to not risk the possibility that interest rates on their mortgages might reset at higher levels after the teaser periods end.
“The difference between the adjustable and fixed is so small, clients are asking ‘why would I take the adjustable rate when there’s such little difference in payment?’ ” said Tamayo. “They’re automatically leaning toward [fixed-rate loans].”
The trend isn’t expected to end any time soon.
“Until that yield curve reverses, you’re not going to see the adjustable-rate mortgages be in favor,” Tamayo said. “You’re probably not going to see those adjustable rates in favor for the next year or two.”
Seeking manageable payments
Buyers who still want more flexibility in their payments are choosing loans, now being offered by some banks, with a 10-year fixed interest-only period. After 10 years, the loan becomes a 20-year fixed-rate loan, mortgage brokers said. Many are setting limits on the rate they’ll pay and some are getting a lower monthly payment by choosing to buy down the interest rate by paying for points, Tamayo said.
Paying for a one-year lock on an interest rate is also growing in popularity, said Julie Teitel, vice president at Mortgage IT.
Still, some other buyers are taking out 40-year and 50-year loans to afford monthly payments, said Martin Hale, account executive at the Manhattan Mortgage Company.
“People are really concerned about keeping the payment manageable,” Hale said. “It’s no longer the price of the apartment, it’s how much of a payment I can manage.”
Only a small number of potential buyers are so concerned about not being able to afford the apartment or house they want that they’re throwing in the towel rather than choosing something less expensive that might be more affordable, according to Teitel.
“No one’s selling out yet,” Teitel said. “What I have seen is a couple of people get depressed and decide to keep renting.”
Tamayo, who works out of offices in Manhattan and Brooklyn, said he’s seeing more interest in properties in fringe areas that banks are targeting to meet goals set under the Community Reinvestment Act, which was enacted in 1977 to encourage banks to meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. In some of these areas, loans are available for as low as 5.875 percent, Tamayo said.
Spending time with customers
The slower sales pace has meant spending more time with customers. First, clients are asking more questions. Second, in the last few years, activity has been so frenzied, most mortgage brokers weren’t able to spend time getting to know customers.
“Now you can talk about goals and what they plan on doing with the house.” Tamayo said. “You never had time when the refinancing boom was going on.”
Teitel says she’s as busy as ever, but that’s mostly because mortgages for units in buildings converted to condos, including 15 Broad Street, are finally closing.
“I’ve been processing loans for a year that are about to close,” Teitel said. “My friends have been experiencing the slowdown for sure.”
The market for properties under $500,000 and above $1 million to $1.5 million is more robust, Hale said. He noted that shoppers in the less-than-$500,000 range tend to be first-time home buyers.
“People coming into the market a little later didn’t have the wherewithal to take advantage of the lower rates,” Hale said. “They’re still trying to get in before rates get to 7 or 8 percent. They are late entering the race, but they are still entering.”
Customers who are paying $1 million to $1.5 million tend to be trading up to a bigger place because their families are expanding, he added.
No time for beginners
Now that the phones aren’t ringing off the hook with potential home buyers, mortgage brokers have to make the most of every opportunity, Hale said. The market is getting tougher for less experienced people who got into the industry to capitalize on the boom, while more experienced brokers are taking market share and thus seeing healthy sales volume, brokers said.
“The people who are going to remain are going to capture a larger share of the market,” Hale said. “The men are being separated from the boys.”
It’s more important than ever to have good relationships with real estate agents and brokers, as well as attorneys who might steer business your way, mortgage brokers said. Teitel pointed out that it’s good to be known for getting tough deals done. She mentions the time she got a mortgage for a Greek client who spoke no English, didn’t have a visa, had no money in the U.S. and couldn’t show income. He’d previously been denied in three other places, Teitel said.
She not only got the mortgage closed, but the very pleased attorney came back to her for a mortgage loan, she said.
“You don’t get loyalty over a plain-vanilla deal,” Teitel said. “When you take the impossible deal and get it done, that’s when brokers are indebted to you for life.”