Requests for Loans Drop 22% in July

In an indication that rising interest rates are damping the frenzy for refinanced mortgages, Countrywide Financial Corp. on Monday reported a 22% drop in loan applications in July and a 15% decline in the amount of loans being processed last month compared with June.

Applicants for new and refinanced loans at Calabasas-based Countrywide sought an average of $2.5 billion in loans per day in July, compared with $3.2 billion in June, which was a banner month for the company.

Another key indicator of future mortgage activity, loans in process fell to $70.4 billion in July from $82.5 billion in June.

Countrywide, the third-largest mortgage lender in the U.S., funded a record $52 billion in loans in July. Refinancings accounted for 73%, or $38 billion. The company declined to reveal how many of the new applications and loans in-process are from consumers seeking to refinance their mortgages.

But industry experts said that while the market for new home loans remains strong, the rate-sensitive refi business is losing steam.

“It is validating what you’d except from the run-up in mortgage rates,” said Charlotte Chamberlain managing director at Jefferies & Co. in Los Angeles.

After interest rates fell earlier this year to their lowest level since the 1950s, mortgage interest rates have been on an uphill march since June.

As of Aug. 7, Freddie Mac listed an average of 6.34% for a 30-year fixed rate loan, up 113 basis points over the 5.21% posted for the week ended June 20. Last week’s tally -- the highest rate this year -- marked the seventh straight week of rising rates for a 30-year mortgage, according to Freddie Mac.

An official with the Mortgage Banker’s Assn., an industry trade group, predicted that interest rates would continue to rise for the next several years, further curtailing refinance activity nationwide and forcing some smaller lenders out of business.

Consumers are expected to refinance $2.4 trillion in home loans this year, $900 billion next year and $400 billion in 2005, said Doug Duncan, chief economist for the Washington-based group. New-purchase loans are expected to remain steady at about $1 trillion for each of the three years.

“If you lose more than half of your business, something has to give and certainly the industry knows this,” Duncan said.

He predicted that up to 10% of the more than 7,500 mortgage lenders nationwide may be forced to close before 2006.

And while Countrywide recently reported that its second-quarter profit doubled, Angelo Mozilo, chairman and chief executive, warned analysts that “funding levels and margins should moderate in the fourth quarter.”

Countrywide shares lost 69 cents Monday on the New York Stock Exchange, closing at $68.08.