Hawaii mortgage business cooling fast

By Harold Nedd
Pacific Business News (Honolulu)

With the frantic refinancing boom largely over, earnings are tumbling in Hawaii's mortgage business, enough to take some steam out of the superheated housing market.

Already, some firms have begun downsizing to adjust to the end of the boom.

Others are lending in riskier parts of Hawaii's mortgage market, making loans to people with flawed credit histories and offering products that require only the interest to be paid for the first few years.

One big player has bailed out of the business in the state altogether.

Gayle Ishima, president of Mortgage Bankers Association of Hawaii, said lender profits are being squeezed by falling demand and a pricing war.

"There's excess capacity in the industry and everybody is going after the same group," said Ishima, who left Bank of Hawaii in November 2001 to help form Hawaii Home Loans.

"We used to do $75 million a month on average in 2003, now we're doing $50 million a month," Ishima said.

The industry's problems could be compounded by the accounting woes at Fannie Mae, the government-sponsored company that buys mortgages from lenders to increase the efficiency of the mortgage-finance market.

If Fannie Mae is forced by government regulators to scale back its purchases of mortgages from lenders, it could dampen sales of new and used homes, as could a spike in interest rates.

"That's a concern," said David Todani, senior vice president of the Treasury Department at American Savings Bank, the No. 5 lender in the state. "That probably means our pricing could move higher."

Statewide, the mortgage refinancing business started to cool when the Federal Reserve began hiking interest rates last spring.

Still, mortgage lending in Hawaii hit $27.6 billion last year, up from $26.8 billion in 2003, according to Title Guaranty, which tracks the local mortgage industry.

The outlook for this year isn't as rosy.

Hawaii mortgage lending is expected to drop between 10 percent and 15 percent in 2005 as interest rates rise.

That forecast hasn't stopped the big players from pushing ahead, rapidly taking market share from the rest of the pack.

First Hawaiian Bank, which rose from No. 4 to No. 3 in the rankings, is pushing its loan officers to cultivate relationships with real estate agents, builders and others who influence home buyers' decisions about where to borrow.

"We're relying on strong relationship banking," said Vern Omori, senior vice president of the real estate division. "We're going out to get new business by catering to real estate agents."

To keep its loan pipeline full, Bank of Hawaii, the state's No. 1 residential lender, is pushing home-equity lines of credit and pre-qualifying as many would-be borrowers as possible.

"The mortgage business is not what it used to be," said John Gray, the bank's executive vice president and mortgage banking manager. "We're down by 50 percent. We were doing half the business in 2004 that we did in 2003. But we're bullish on what we think this year looks like for us."

Others such as First Horizon Home Loans, which moved into the market after Washington Mutual moved out last September, are left to fight for the remaining business, employing more liberal lending standards to qualify a broader pool of customers.

It's a strategy that some analysts fear could cause defaults to rise.

"Not everybody wants to deal with the credit-challenged folks," said Hiroshi Imamura, vice president and Hawaii district manager for First Horizon. "But you have to position yourself in this market to do all things, or you're not going to get your share this year."

Eight months before Washington Mutual put out its "for sale" sign, it was lending $200 million a month. That figure plunged to $50 million by the time it pulled out and First Horizon stepped in, Hiroshi said.

"We're below $50 million right now and 90 percent of our staff moved over from Washington Mutual," he said.

Others have struggled to adapt, too.

Hawaii Home Loans' Ishima said they have eliminated 10 mortgage-related jobs from a peak of 100 within the past year.

Ishima said the company also is doing about $10 million less business a month than a year ago.

"We've had a drop in mortgage business," she said, "but not as large a drop as a lot of others."