Quicken Chief Says Higher Rates Won’t Limit Housing Rebound
Stock Chart for Ally Financial Inc (ALLY)
Quicken Loans Inc. head William Emerson, whose online home lender is buying mortgage servicing rights from Ally Financial Inc. (ALLY), said higher interest rates won’t damp housing’s recovery and his industry will benefit from refinancings if the economy cools.
As the labor market rebounds, interest rates may “tick up,” Emerson, Quicken’s chief executive officer, said on Bloomberg Television’s “Market Makers” during an interview today. “I don’t think you’re going to see rates jump that much,” he said. “It’s going to be a great opportunity for people to buy homes when we start to see jobs come back.”
Should there be a slowdown in housing and rates stay low, “there are still opportunities for people out there to refinance,” Emerson said, citing federally backed programs to help struggling borrowers. “There’s plenty of things still to be done, regardless of what happens economically.”
Quicken agreed this month to pay about $280 million for Ally’s remaining contracts to manage mortgages for agencies such as Fannie Mae and Freddie Mac. Quicken said the deal will vault the firm into the top 10 among U.S. servicers, which handle billing, collections and foreclosures, and that it’s pursuing more purchases. Quicken and Ally are based in Detroit.
Ally received a $17.2 billion taxpayer bailout that left the U.S. Treasury Department with a 74 percent stake in the company, which says it’s No. 1 in auto loans and leases. The Federal Reserve rejected Ally’s capital plan this month, saying the planning process and capital ratios didn’t meet standards.
Purchases of new homes surged 15.6 percent to a 437,000 annual pace in January, the most in two decades, according to the Commerce Department. The Federal Reserve, seeking to boost economic growth, said March 20 it will leave its key interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation is less than 2.5 percent.
The servicing rights Quicken will get from Ally are tied to Freddie Mac- and Fannie Mae-backed mortgages. The borrowers are current on payments with “higher-than-market interest rates, which could substantially benefit from refinancing,” Quicken said in a March 21 statement.
Fannie Mae and Freddie Mac have pressed lenders for refunds on loans sold to the two government-backed mortgage financing firms after discovering faulty data about borrowers and the properties that led to billions of dollars in soured debt.
The loans being sold to Quicken are expected to be refinanced, Gina Proia, a spokeswoman for Ally, said in an e- mailed statement. Ally will remain liable for refund claims until that happens, with Quicken bearing the risk after the refinancings, she said. Aaron Emerson, a spokesman for Quicken, declined to elaborate on the terms.
Lawmakers have been discussing ways to wind down Fannie Mae and Freddie Mac after both needed public bailouts during the 2008 credit crisis. William Emerson said Quicken continues to work closely with both companies.
“We have to be very in-tune with what Fannie and Freddie are doing,” said Emerson, 50. “As that continues to shift and change and Fannie and Freddie are around or not around, we’ll make business decisions around that. But today they are very real and we have to make sure we’re talking with them and understanding what they want to do.”
The Ally loans had an unpaid principal balance of about $34 billion as of Jan. 31, adding to Quicken’s $90 billion servicing portfolio. Quicken said it originated $70 billion in residential mortgages last year to rank as the nation’s third-largest mortgage lender. The firm doesn’t have publicly traded common stock.
Quicken is taking advantage of the collapse of rivals, retreats by some of the largest banks and hurdles faced by new competitors. The company overtook Citigroup Inc. (C) as the fifth- ranked originator in the third quarter, and then surpassed U.S. Bancorp and Bank of America Corp. Owned by billionaire Dan Gilbert, Quicken was the 34th-largest mortgage lender in 2006.
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