Belinda Hollins used to consider herself the "queen of subprime." The Kansas City-area mortgage broker rode the boom, then held on through the bust. Now she sees the good times starting to return.
"We are so busy. It's crazy," said Hollins, who has worked in the mortgage business for 20 years. "The past two years were really miserable. But now it's starting to get better."
It has been a long, dark downturn for the U.S. mortgage industry. Years of free-wheeling operations came to an abrupt halt a little over a year ago and left the industry scarred by scandal, soured loans and sinking home values.
Last year, with banks clamping down on credit, unemployment skyrocketing and billions in savings erased in stock market declines, consumers largely backed away, or were turned away, from new mortgages.
Also declared dead were the subprime loans made to borrowers with poor credit and sometimes unreliable income. The loans allowed many banks and mortgage brokers to book big profits but led later in many cases to steep losses.
Now, thanks to a mix of market factors, signs of life are returning to the mortgage business even as the economy remains mired in recession and foreclosures remain a problem. Many experts believe the renewed activity in the mortgage business could help plummeting home values bottom out as early as this summer and give at least a light boost to the economy.
"Is it a return of the good old days? No, but it is picking up," said University of Maryland professor Peter Morici.
Aided by low interest rates and government incentives, refinancings have been climbing rapidly. Home purchase mortgage applications are also showing signs of a rebound, although at a slower pace.
Mesirow Financial chief economist Diane Swonk said the fundamentals driving the housing market had become much more positive in recent months and she expected housing to swing "from a drag to a push" on overall GDP growth in 2009 for the first time in four years.
"It is a little good news. It doesn't feel like we are in free fall anymore," said Swonk.
MINI MORTGAGE RUSH?
U.S. mortgage applications for the week ended April 10, were up 45.6 percent from a year earlier, according to the Mortgage Bankers Association. Refinancings make up the bulk of the business, but mortgages for new purchases are gaining ground, the association said.
In another indication of an upturn, a March report from the U.S. Commerce Department said sales of newly built U.S. single-family homes rose in February to 337,000, a 4.7 percent increase from the previous month. Sales rose at their fastest pace in 10 months.
Sales increases were seen across the country, with the highest uptick in the South but gains also on the west coast, the Midwest and Northeast.
Home sales have been bolstered by an $8,000 tax credit for first-time home buyers initiated by the Obama administration. To qualify, buyers must purchase a principal residence between Jan. 1 and Dec. 1, 2009.
"A lot of first-time buyers are getting off the fence. An extra $8,000 in their pocket after they file their tax returns doesn't hurt them," said Nick Heth of Legacy Home Mortgage in Phoenix, who estimates his business is up about 40 percent since last year. "As well, the prices have come down to the point they can afford."
Refinancing activity has been spurred by the Federal Reserve's slashing of interest rates and by Treasury Department incentives to lenders and servicing companies to modify loans to avoid foreclosure, among other factors.
STILL WARY
The fresh activity is keeping mortgage brokers and home lenders busy — new loans now can take a month or more to close. Applications are stacking up both because of a shortage of manpower after widespread layoffs in the industry over the past year and because of increased scrutiny and heavy documentation now required for loans, according to brokers.
Borrowers need proof of adequate income, low debt ratios and a good credit history or they are turned away.
Buyers are also more conservative. Where in past years they might have stretched to move into homes they could barely afford, many brokers say buyers are now giving themselves more cushion. Buyers who might be able to afford a $2,600 monthly payment, for instance, are opting for a mortgage that obligates them to pay less.
"You are starting to see some good stuff out there. We're now looking at April closings and we're into the fifth month of being very very busy," said Matthew Locke, president of the mortgage division for St. Louis-based Pulaski Bank.
Gary Piacentini, president of home lender CapCenter in Richmond, Virginia, said his company was "swamped" with new business.
"There is plenty of liquidity out there for people who are normal bill-paying folks," he said.
Despite the optimistic signs, clouds of worry still hang over the housing market. Unemployment keeps mounting as the recession curtails business prospects. Home values continue to slide in many cities and towns and foreclosures continue in many states, including Florida, California and New York.
But at her desk at Signature Mortgage Group in Overland Park, Kansas, Hollins said she saw a distinct turnaround, with her monthly volume roughly doubling since December.
