Housing – and the funds related to it – again remained one of the few bright lights during a rather dim economic year.

In fact, mortgage interest rates, which did not rise to the levels predicted by many analysts, clearly emerged as the top story on the 2003 real estate landscape. Rates continued to be a fallback lifesaver, while helping consumers see that property could be a viable, reliable alternative to the conventional financial markets.

Not only did a consistently low interest rate picture allow first-time buyers to continue a realistic search for home ownership, but it also provided a terrific avenue for cash-strapped families to tap into home equity. And, potential second-home buyers and investment property investors tended to look to real estate sooner because of low interest rates and volatile nature of the stock market.

Peter Struck, director of portfolio management for Washington Mutual Bank, said 2003 was a record buster year with interest rate levels we might not see again.

“There is about $6 trillion in total mortgage debt in this country and more than half of that – $3.3 trillion – will have been originated in 2003,” Struck said. “That is absolutely unbelievable.

“An analogy I like to use is comparing mortgages to automobiles. There are about 120 million cars in this country that we drive everyday. The Big Three automakers, plus Toyota and others, produce an average of about 16 million cars a year. In order for the car makers to reach of level we hit for mortgages in 2003, it would be like asking them to increase their annual production from 16 million to 60 million.”

Struck said approximately 75 percent of the $3.3 trillion generated in mortgages in 2003 came via refinances, while 25 percent represented new purchase loans. He anticipated the ratio would be flipped in 2004, with new purchase loans far outdistancing the number of refinances. That makes sense…how many refinance candidates could be left?

A record 5.99 million existing single-family homes (one to four-unit dwellings) were sold in 2003, up from last year’s record of 5.57. The main reason for this activity was that 30-year, fixed-rate loans spent most of the year under the 6-percent plateau (with average fees at 2 percent of the loan amount). Next year, interest rates on 30-year, fixed-rate loans are expected to climb from 5.9 percent to 6.5 percent and existing-home sales are expected to hit 5.6 million.

“You have to remember that housing is the most rate-sensitive industry in our economy,” said David Lereah, chief economist for the National Association of Realtors. “If interest rates go up, there are definitely going to be fewer buyers in the marketplace.

“I estimate that a full percentage point affects approximately 250,000 new buyers.”

Another big story in 2003 was the nationwide settlement against subsidiaries of Illinois-based Household International. The company agreed with the attorneys general in all 50 states and the District of Columbia states to settle several pending lawsuits involved alleged predatory lending practices for a reported $484 million. While the settlement was not a panacea for most of the consumers involved (many of them are still stuck with high interest-rate loans and other awful terms) it sent a message that bait-and-switch tactics and deliberate misrepresentation were no longer going to be tolerated. Many of the cases involved senior homeowners whose home equity was their only tangible asset.

A third story that hit the 2003 big-time story list was the increase in the number of consumers who looked to a reverse mortgage to help supplement dwindling financial portfolios, pay property taxes or offset the cost of health care. The first reverse mortgage programs were flawed, yet many have been improved. An expensive, awkward idea first tried 30 years ago by independent bankers, reverse mortgages have evolved into a “demonstration program” sponsored by HUD in 1993 and now to permanent, refined economic vehicle that generated more than 19,000 loans in calendar year 2003.

HUD, through its Federal Housing Administration, backs the most popular reverse program known as the Home Equity Conversion Mortgage. According to HUD, a total of 7,982 HECMs were made in 1999.

Representatives from the “big three” in reverse loan originations – Seattle Mortgage, Wells Fargo and Financial Freedom Senior Funding – said the growth in reverse lending would definitely continue.

“You have 5,500 people turning 65 every day,” said Wells Fargo’s Cheryl Chapin. “When you consider the vast number of people who be eligible for this product in the next few years, the market is going to be huge.”

Tom Kelly, former real estate editor for The Seattle Times, is a syndicated columnist and talk show host. Tom can be reached at news@tomkelly.com.

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