For people whose business has doubled in the last eight months, mortgage bankers are a pessimistic bunch these days.
On the surface, the business looks like it's booming as interest rates stabilize at levels that are near the lowest in a generation.
The Mortgage Bankers Association of America's market index of mortgage applications rose to 175.5 in the week ending Sept. 22, up from 79.5 in January.
The economy is landing softly, and money is cheap. So things are great, right?
Actually, things have not gotten all that good. The indexes have doubled since early this year, but business is still nowhere near where it was during the refinancing boom of 1993. Profits are still at the low end of industry norms. And experts don't see things getting that much better.
"We are seeing the highs," said David Lereah, chief economist for the Mortgage Bankers Association of America in Washington. "I don't think markets can sustain themselves at this pace."
The quickened pace has come from an uptick in both new home construction and sales of existing homes, Mr. Lereah said.
Even refinancing has picked up some, comprising 30 percent of recent mortgage applications, up from 15 percent early this year, as lower interest rates offer relief to homeowners who either lacked enough equity to refinance in 1993 because of falling home values in some parts of the nation, or who bought their homes with more expensive mortgages last year. "People who bought homes last year had 9 percent financing," he said.
But Mr. Lereah, whose association's members underwrite 54 percent of America's mortgages, is quite clear that the improving numbers are still nowhere near historic highs.
With the association's seasonally adjusted mortgage index hovering in the 170s, it's not going to make anyone forget 1993, when the index reached 271 and the subindex for conventional refinancings reached the 1,300s, compared with nearly 350 today.
"It doesn't come close to the refinancing boom. This thing happening now, I call it a boomlet," he said. "It was chaos back then."
The refinancing boom of 1993 was no great mystery: Interest rates were low. Money is a commodity, so people buy when it's cheap.
The latest index figures are the highest since the week after the Federal Reserve engineered the first of its 1994 interest rate increases in February that year.
"We barely broke even [as an industry] last year," Mr. Lereah said. "Everyone made money in the refinancing boom but last year it all came crashing down. I'd say we laid off 20 percent of the industry."
The mortgage business typically has profit margins between 10 and 15 percent, Mr. Lereah said. In 1993, profits reached 18 percent of revenue. Last year, the figure was 4 percent. This year, the economist is hoping for 10 percent.
For the mortgage industry to do significantly better nationwide, he said, mortgage rates will have to come down enough to entice more consumers to buy homes. But the association thinks interest rates will stay about where they are for another 18 months. The outlook is somewhat better for savings and loan associations, which write another 16 percent of all U.S. mortgages and which by law must devote 65 percent of assets to home mortgages and mortgage-related securities.
According to the federal Office of Thrift Supervision, S&Ls; made almost $2.5 billion in the first half of this year, including $37 million from 77 Maryland-based thrifts regulated by OTS, up from $2 billion ($26 million in Maryland) in the first half of 1994.
But OTS research and analysis director Kenneth F. Ryder said the regulators don't know how much of that profit came from mortgage lending.
Mr. Ryder said banks have been concentrating more on traditional assets like mortgages, after 1980s forays into junk bonds and direct real estate development that turned disastrous for many.
He said S&Ls; have managed to keep profits stable in recent years by tightening their management and relying more on adjustable-rate mortgages that let them avoid getting stuck with unprofitable long-term loans.
Despite the gains, however, the mortgage-dominated thrift industry remains much less profitable than commercial banking.
Congress is considering legislation, supported by OTS, that would essentially dismantle the S&L; industry and fold its deposit insurance fund into the larger fund that insures bank deposits.
In Baltimore, mortgage bankers say they haven't seen a real boom because the local housing market has been sluggish. Until a big jump during August, the number of existing homes sold in metropolitan Baltimore has been down sharply for much of the year.
Consumers pushed local sales of new homes up 5.7 percent during the second quarter of 1995, but that followed a 14 percent drop in the first three months of the year. "It's not comparable," said Peter M. Martin, president of Provident Bankshares Corp., parent company of Provident Bank of Maryland.
"We did $750 million [of loan volume] in 1993. Last year we probably did $450 million. It was very slow the first half of 1995, and since then it's picked up considerably," he said.
But Mr. Martin predicts Provident's mortgage business will only equal its weak 1994 volume, and efforts to lift profits turn on increasing efficiency and improving service.
He said the bank has cut its mortgage-related staff to about 250 people from 300 in 1993.