Riding the coattails of a lagging economy

Paul Clinton

Local mortgage providers are continuing to benefit from the more

than two-year boom in refinancing that has help boost an otherwise

flagging economy.

Downey Financial Corp., Newport Beach’s largest public company,

saw its mortgage business explode following 1999, when mortgage rates

began their fall to now-historic lows.

And there’s no sign of a slowdown, said Thomas Prince, Downey’s

chief financial officer.

“There are a lot of loans in the pipeline,” he said. “There has

been a high level of activity.”

Downey’s revenue jumped 41.56% in 2000, to $839.5 million, and

another 5.8%, to $888.2 million, in 2001. Through three quarters this

year, Downey has brought in almost what it took a full 1999 to

achieve.

Downey, which trades on the New York Stock Exchange under the

symbol DSL, operates primarily as a single-family lender. About 97%

of Downey’s loan portfolio is in that area, Prince said.

Downer peaked at $56.42 on May 6, over a 52-week period, and

closed Friday’s trading at $40.28. The stock traded near $20 a share

at the beginning of 2000.

Impac Mortgage Holdings, also in Newport Beach, also has reaped

the rewards of a white-hot lending market. The public company offers

shares on the American Stock Exchange under the symbol IMH.

Impac’s revenue jumped 19.77%, to $151.3 million, in 2000, and

14.96%, to $173.9 million, in 2001.

The company is a Real Estate Investment Trust that invests in what

are known as “nonconforming” loans, which require less income

documentation to acquire.

Impac, which traded at $4 a share in early 2000, closed Friday at

$12.17. It peaked June 28 at $13.48.

The recent success of both companies illustrates a broader

nationwide trend in the mortgage industry, spurred by low rates.

The interest rate for a 30-year fixed-rate mortgage with Freddie

Mac came in at 6.03% Thursday. The average 15-year fixed mortgage was

5.26% and a one-year adjustable-rate loan, or ARM, was 3.79%.

Mortgage rates began their historic tumble during the summer of

2000, when a 30-year fixed mortgage was at 8.5%.

Over the past two years, more than half of the nation’s mortgage

debt has been refinanced, according to a study released Wednesday by

the Homeowners Alliance.

Since that time, close to $2.5 trillion in debt has been

readjusted for a savings of $274 billion, the study reported. That

activity has accounted for 20% of the country’s gross domestic

product growth.

“A lot of the consumer strength has come from the customer who has

taken cash out of the process,” said Mark Zandi, the study’s author.

“There has been a lot of refinancing activity.”

In Orange County, mortgage refinancing has contributed 38%, or

$4.1 billion, of the economic growth this year.

Zandi, the chief economist and co-founder of Economy.com, says he

sees the historic mortgage boom coming to a close if the economy

improves during 2003 -- as many economists have predicted.

But there is still time for homeowners to sneak in under the wire,

Zandi said.

“There is [time], but I wouldn’t wait too long,” Zandi said.

“Mortgage rates are very volatile and they could go up rapidly.”

* PAUL CLINTON covers the environment, business and politics. He

may be reached at (949) 764-4330 or by e-mail at

[email protected].