MORTGAGES AND RELATED PROFITS REACH RECORD LEVELS June, 2002 by Jim Woodard Mortgage company profits almost doubled last year, according to reports from the Mortgage Bankers Association and The Stratmor Group. Profits are now more than when they reached record levels during the last refinancing boom in 1998. Home purchase and refinance loans reached a new record during the past year, totaling about $1.2 trillion. The lure, of course, is the super-low mortgage interest rates. Last year, the average pre-tax net income for companies making home loans was $1,212 per loan. In addition to the low interest rates, another factor contributing to the large number of mortgage loans is the generally relaxing of certain qualification requirements. Some lenders are now permitting well-qualified applicants to have loans that will result in mortgage payments being up to 50 percent of the family’s total income. That was unheard of a few years ago. Ten years ago the normal limit was 28 percent to 32 percent of the family’s income. Also, the average down payment for a first-time homebuyer has dropped to 3 percent, compared with 10 percent a decade ago. Home Improvement mortgages on rise Home improvement projects and related mortgages are on the rise. And rapidly growing home equities and the availability of mortgage loans is spurring the trend. With sharply rising home prices in many areas, many families are opting to satisfy their need for more space by adding rooms to their existing house, rather than purchasing a new residence. In other cases, the limited inventory of available homes in some areas force buyers to select and purchase a less than ideal home. After closing the transaction, they immediately launch a remodeling project to make the home right for their family. When homebuyers want remodeling work following their purchase, they can often arrange a mortgage loan that covers both the purchase and subsequent remodeling work. Sellers are also among the active home remodelers. While preparing their home to be placed on the market, they remodel and improve certain areas of the home that will most likely result in a higher sales price. In some cases (especially in remodeling outdated bathrooms and kitchens), such a project can result in a price increase far more than the remodeling cost. Yet another reason for the current remodeling trend is the availability of funds for the projects by tapping the rapidly growing equity generated by those rising home values. Money can be easily pulled out of that equity to pay remodeling contractors. On the downside of home remodeling is the ever-present risk of dealing with a shady or non-reliable contractor. The increasing number of remodeling projects is coupled with a growing number of complaints about contractors and remodeling firms. It’s only too easy for a person or firm to put a “home remodeling” sign on their door, whether they have any experience or capability to handle these complex jobs or not. It’s best to contact a seasoned local firm, and be sure to check references and past customers. And use a comprehensive remodeling contract. Complaints about remodelers is the second most frequent category of complaints received by the Better Business Bureau. Use of Internet for Information Growing Since 1996, the use of the Internet for home and mortgage searches by prospective buyers increased by 39 percent, according to a recent survey. Newspaper ads are still a major source of information for home seekers, but an increasing number of buying prospects are obtaining their information from Web sites, including those owned and operated by newspapers. These sites have captured home seekers who are two years younger than the national median, according to a study and report from Borrell Associates Inc. Also they have a median household income that is 55 percent higher than the average. Another interesting observation: The study found home buying prospects who go to Web sites for information on available homes and mortgages are usually renters who are actively interested in purchasing their first home. This applies to 57 percent of persons accessing these sites. It’s also interesting to note that the need for real estate brokerage service is not diminished by the Internet, according to the survey report. About 86 percent of respondents said even though they received preliminary information via the Internet they would probably use a Realtor to complete their purchase transaction. | 
