Cool-off in mortgages: Lenders in county cite end to refi boom

A $2.1 billion mortgage for a group of properties including the Extended Stay motel in Springfield Township was Lucas County's largest in 2004.

Mortgage financing activity slipped by nearly a third in Lucas County last year, slowed by what industry watchers consider an end to the home refinancing boom.

"That has passed," said County Recorder Anita Lopez, who took office Jan. 1.

"In talking to the title companies, they have also seen their numbers slide."

The total number of mortgages filed by local and national lenders on residential and commercial properties in Lucas County fell to 33,295 from 46,548 in 2003 for a decline of 28 percent, according to the recorder's staff.

The value of the mortgages rose considerably last year to $13 billion from $8.9 billion, but that is somewhat misleading.

A huge chunk represents not money borrowed to purchase property locally but financing activities of large out-of-town corporations with local operations.

For example, the biggest mortgage in 2004 was connected to the $3.1 billion purchase of the South Carolina-based Extended Stay America Hotel chain last May by the Blackstone Group, a New York investment firm.

Bear Stearns Commercial Mortgage and Bank of America, which financed the deal, took out a $2.1 billion mortgage on an Extended Stay motel in Springfield Township and other local properties owned by Extended Stay.

The mortgage far exceeds the worth of the local real estate.

Rather than break out the value of real estate by locale, it is common for lenders to simply file a mortgage for the entire amount of a loan in every place where the borrower owns property.

The practice is a way for lenders to protect themselves in case a borrower goes bankrupt.

Similar multimillion-dollar mortgages were taken out on properties owned by the real estate arm of U-Haul International and a real estate investment trust in Southfield, Mich., that owns manufactured housing communities.

The recorder's office handles all documents related to commercial and residential real estate in the county, including first mortgages, refinancings, lines of credit, and paperwork involving a company's restructuring its debts.

Besides home mortgages, there also was a decline in land contracts, in which the seller finances the house purchase personally. There were 330 such contracts worth $24 million last year, compared with 396 for $30 million in 2003.

Clearly, home mortgages - the bread and butter of many lenders locally - took a huge dip in 2004.

Business at some banks and mortgage firms dropped by nearly half from that of 2003.

Mortgage executives are in near unanimous agreement that the drop reflects a decline in refinancing.

Most homeowners have taken advantage of interest rates that have been near 40-year lows for some time.

With rates either stagnant or slightly higher than in 2003, there was little incentive for borrowers to refinance yet again, executives said.

At Fifth Third Bank, the industry leader locally, refinancing activity slipped to 33 percent of the total loans from 66 percent in 2003, said Elizabeth Kollar, vice president of mortgage lending.

"We've refinanced the multitudes," quipped Ms. Kollar. "A lot of people did it two and three times. They're not coming back unless interest rates drop to 2 or 3 percent."

At KeyBank, the value of mortgage loans made in Lucas County last year slipped 47 percent to $92 million, and the number of loans fell by 562 to 1,063

The 2003 total was inflated somewhat by slightly higher commercial loan activity.

But most of the loss last year was the result of a drop in home refinancing, said Paul Meinerding, senior vice president

"It has slowed down," he said. "I don't know if we're at the end of it. But there isn't the pent-up demand that there was."

Home construction and sales of existing houses remain strong locally, mortgage executives said.

At Fifth Third Bank, Ms. Kollar said the mortgage arm is on target to meet projections. But she conceded that, as at many mortgage-lending firms last year, the sales force had to work the phones harder in 2004.

"We had to go back to normal and start peddling and building relations. When we were all herding cattle through for re-fis, it was easy to neglect business," she said.

The drop in refinancing and accompanying loss in revenue forced some mortgage lenders to reduce staff.

Recognizing that the business is cyclical, KeyBank stayed lean. But Mr. Meinerding said he knows of other firms that are paring staffs.

At Northern Ohio Investment Co., Sylvania, the number of mortgages in Lucas County slipped to 934 from 1,218 and their value fell to $92 million from $127 million.

Excluding the situation with home refinancing, business is strong, said President Ralph Vinciguerra.

He said he expects a similar year in 2005 with mortgage interest rates holding fairly steady.

But with the decrease in the number of people seeking to refinance, he predicted that competition for remaining business will be heated and that "some smaller lenders will get out of the market and larger ones will make cutbacks."

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.