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Mortgage industry in a period of adjustment as real estate slows

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While interest rates on home loans continue to rise and the housing market slows, consumers either attempting to refinance or obtain a new loan are becoming more rare. As a result, some home lending companies have either consolidated, laid off employees or gone out of business.

On May 7 Wachovia Corp. (NYSE: WB) announced that it is acquiring Golden West Financial Corp., gaining mortgage lending operations under the World Savings Bank name in 39 states.

Aames Investment Corp., a national subprime mortgage lender based in California, is in discussions with several parties regarding a potential merger of sale of the company, the company said last week.

It has also been rumored that Ameriquest, whose parent company Countrywide Financial Corp. (NYSE: CFC) this month announced plans to close 229 branch offices and lay off 3,800 employees nationwide, may be acquired.

According to Stanford Kurland, a Countrywide executive, consolidation will continue in the home lending industry so long as mortgage volumes keep declining.

The Mortgage Bankers Association (MBA) Wednesday released its Weekly Mortgage Applications Survey for the week ending May 12.

The market composite index, a measure of mortgage loan application volume, was down 14.7 percent compared with the same week a year ago on a seasonally unadjusted basis.

While volume increased 4.6 percent last week from the previous week, the previous week saw mortgage applications fall the most since February.

Although consolidations are occurring, Rory Cambra of Pacific Capital Mortgage and president of North San Diego County chapter of the California Association of Mortgage Brokers said what's more common is a company either downsizing or going out of business.

In April and May three large firms -- San Francisco-based Capital Alliance Funding Corp., QuoteMeARate.com and Merit Financial Inc. -- all closed, according to MortgageDaily.com.

"Lot of companies will just go out of business (this year)," Cambra said, adding that a few years ago when interest rates were not being adjusted, the amount of mortgage lending companies doubled, which meant people with limited industry knowledge were getting into the business. "All we're doing is a natural cleansing of the industry; we'll have the professionals left, which is good for the consumer."

For those companies that don't go out of business but are struggling, the alternative is layoffs.

"There's been a massive amount of companies that have downsized. ... Obviously business has slowed down," Cambra commented. He noted that the problem for companies is capacity. If the amount of loans a company processes declines, then there usually isn't a need for as many employees. When the amount of loans decrease, companies much make cuts, he said.

There were 6,555 layoffs in the U.S. mortgage industry between November 2005 and April 2006, according to National Mortgage News.

Hitting closer to home, early this year Washington Mutual Bank, the third-largest mortgage lender in the country by total volume in 2004, announced it would close 10 of its 26 home-loan processing centers, eliminating 2,500 jobs, nearly half of which are in California and Florida. The company said the cuts represent nearly 4 percent of its total work force of 60,000. While this appears quiet a large layoff, it is nothing new to the industry, for it is one that ebbs and flows, according to Rob McNelis, past president and spokesman for the San Diego chapter of the California Association of Mortgage Brokers.

Now in a slowing housing market, Cambra said the key for any lending company to survive is to have an original marketing strategy and create relationships with real estate agents, past clients and insurance agents.

According to the last MBA survey, the average contract interest rate for 30-year fixed-rate mortgages increased to 6.66 percent from 6.61 percent. The average contract interest rate for 15-year fixed-rate mortgages increased to 6.26 percent from 6.2 percent. The average contract interest rate for one-year ARMs increased to 6.07 percent from 6.04 percent. The survey covers approximately 50 percent of all U.S. retail residential mortgage originations.

Inman News contributed to this story.

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