Record-low rates aren’t creating rush at local mortgage firms

Interest rates are in record-low territory, but demand for new mortgages and refinancing remains tempered in the Indianapolis area, industry executives say.

The average fixed rate on a 15-year mortgage fell nationally to an all-time low of 3.13 percent last week, Freddie Mac reported, while a traditional 30-year mortgage rate dipped to near-record low of 3.88 percent.

But local mortgage firms say low interest rates don’t always mean a big boost to business because broader economic issues are keeping large parts of the population from seeking or qualifying for loans. The country and Indiana have seen job gains in recent months, but unemployment remains high, with the jobless rate at 8.3 percent nationally and at 9 percent in Indiana.

When people are insecure with their job situation, they aren't likely to make big financial decisions.

“There is a tremendous amount of opportunity out there for refinancing and purchasing, but because of the unemployment, a lot of those people don’t qualify for loans today,” said Craig Royal, CEO of Indianapolis-based Royal United Mortgage LLC.

Royal United is seeing slow, steady expansion, Royal said, but not the robust growth many industry players saw prior to the recession. 

Royal co-founded the mortgage firm in 2008 with 22 employees. Last August, the company announced plans to expand its local operations by adding 140 employees by the end of 2013, bringing employment to nearly 300. Royal United now has 218 employees and is about halfway to its job-creation goal, Royal said.

Royal was chief financial officer at Oak Street Financial Services LLC from 1999 to 2007. Oak Street, which specialized in non-conforming loans, was one of the area’s fastest-growing companies for almost a decade and had more than 700 employees at its peak.

Oak Street filed for Chapter 11 reorganization in 2007 amid the subprime lending meltdown after selling most of its assets to Kansas City, Mo.-based Novastar Financial.

Unlike Oak Street, Royal United is a conventional lender, which limits its market, Royal said.

“It’s a much more competitive environment than at Oak Street,” he said. “The pool of available borrowers is smaller. At Oak Street, you could find any product to fit a borrower. The guidelines are different today.”

Still, Royal United and another local, fast-growing mortgage firm, Stonegate Mortgage, are having success, partly because several mortgage players exited the market during the housing crisis.

About 65 percent of their business comes from new home purchases and 35 percent through refinancing.

Stonegate Mortgage was founded in 2005 and does residential mortgage work, such as processing and underwriting loans; managing escrow accounts; and purchasing mortgages from financial institutions.

The firm was based in Fishers before moving its headquarters last year to The Precedent office park near Keystone Avenue and East 96th Street in Indianapolis, to accommodate a planned expansion.

In December 2010, Stonegate pledged to hire 300 workers by 2015 and expects to add 100 of those by the end of this year, CEO Jim Cutillo said. With $15.4 million in revenue at the end of 2010, the firm was the second-fastest growing company in the Indianapolis area, according to IBJ statistics. Its grew revenue 491 percent from the previous three years.

Much of the growth can be attributed to Stonegate’s expansion into 26 states. It plans to enter nine more by the end of June.

“We’re seeing some pick-up in our business from the lower rates and the [mortgage insurance] premiums being lowered,” Cutillo said. “But some of that pick-up is because some of the other lenders have exited the business. We’re grabbing market share because we’re a non-bank and we have the capital.”

On March 6, the Federal Housing Administration said it will lower mortgage insurance premiums for borrowers who refinance their loans as part of the federal government's plan to boost the housing market.

Under the plan, the FHA will reduce up-front premiums to 0.01 percent of the total loan amount from 1 percent. Annual fees will be cut to 0.55 percent from 1.15 percent for borrowers with FHA loans made before June 1, 2009.

Another mortgage-assistance initiative, the Home Affordable Refinance Program, or HARP, gives underwater borrowers the opportunity to refinance their homes, even if they owe up to 125 percent of the value of the home.

Many banks aren’t promoting the program because they’ve shed some of their mortgage business following the housing crisis, Cutillo said.

“We believe it has merit,” he said, “but we’re a non-bank.”