Lower interest rates and federal tax law revisions that leave interest on home mortgages as the only fully deductible consumer interest payments have prompted two home loan companies in Newport Beach to plan major expansions outside the county.
The Hammond Co. said it plans to establish six new offices throughout California during its fiscal year beginning April 1, while Newport Pacific Funding Corp. said it will open an office in San Diego around June and is considering the addition of a branch office near Ventura or Riverside.
And Richard Betchley, president of Network Funding Corp., a home mortgage bank whose related company runs a computerized Santa Ana information system on mortgage rates, said he expects to see a trend of expansion among strong home lenders.
"The tax law is important because it is the only safe haven for interest rates (as a deduction)," said Betchley, whose Pleasanton firm is opening offices in San Diego and Sacramento. "Most aggressive mortgage bankers feel they're in the right industry at the right time."
For Newport Pacific, which bills itself as one of the county's top 10 mortgage brokerage firms with $20 million in loan originations monthly, sweeping changes in federal tax laws passed late last year were "absolutely a factor" in the company's decision to expand, Vice President Susan Han said.
Under the new law, tax deductions for interest payments on loans for new cars and other consumer goods will be phased out. Only interest payments on the mortgage of a consumer's principal residence and second home may be deducted.
Another factor in Newport Pacific's planned growth, Han said, is the lowering of interest rates on home mortgages from an average of 12% a few years ago to about 8% or 9% today. The company also said it will double its team of loan officers--from 15 to 30--who work out of Newport Beach.
Saying that it was "almost impossible to figure out the effects of the tax law," Hammond Co. President and Chairman Thomas T. Hammond attributed his company's growth, and the home-buying boom in general, to lower interest rates.
"Most families I know really don't rate that (the tax law) as a big issue," he said. "People buy houses because they're more affordable and because of the lower interest rates."
Hammond said the company, which last month reported a doubling of its third-quarter income to $1.01 million, is planning to establish three offices in the San Francisco Bay area and three more in the greater Los Angeles area.