by Calculated Risk on 11/03/2005 12:32:00 PM

The OC Register reports: Mortgage lenders see profits shrink

Rising interest rates are hitting mortgage lenders in the wallet.

The owner of Irvine-based Option One Mortgage Corp. on Wednesday joined a chorus of profit-starved lenders. H&R Block,best known for its tax services, says its profit may be trimmed due to costlier mortgage making.

H&R Block CEO Mark Ernst told analysts Wednesday that profits may be at the low end of analysts' expectations because of increased borrowing expenses for its mortgage unit. He said rising short-term interest rates create "a difficult environment for anybody in this industry."

And this "difficult environment" will probably hit employment soon:

Lenders and related businesses added 15,000 workers - a 42 percent jump - in the past four years. One in four jobs created in [Orange County, CA] since 2001 have been in lending-related fields.

And "lending-related fields" are only a portion of the jobs directly related to the housing boom; other home related employment would include RE agents, construction, home inspectors and escrow officers.

And some interesting tidbits from the article:

But many lenders' profits are now shrinking. For example, Los Angeles-based lender and mortgage investor Aames said Wednesday that its pre-tax net interest margin - the gap between what it lends money at and the costs to acquire those funds - shrank to 2.12 percent in the third quarter from 2.39 percent in the previous three months.
...
Mortgage bankers made $4trillion in mortgages in 2003, a banner year. While business in the past two years has been exceptional - twice the annual average in the 1990s - it is expected to fall off some 18 percent in 2006 from 2005's projected $2.78 trillion, according to the Mortgage Bankers Association.
...
According to the National Association of Realtors, buyers were spending close to 21 cents out of every $1 earned on monthly mortgage payments during the second quarter of 2005. The group's housing affordability index - a measure of consumers' ability to make monthly mortgage payments started in 1970 - was at a low during the second quarter of 2005 not seen since 1991.
...
Roughly three-quarters of Orange County's homebuyers use adjustable-rate mortgages that help borrowers qualify for bigger loans.
...
Prashant Kothari, president of String Information Services, estimates that as much as $300 billion in adjustable-rate mortgages could be refinanced nationwide next year and $1trillion in 2007.