MGIC Chief Forecasts Big Market Shakeout by '95

Article excerpt

As a mortgage lending bonanza stretches well into its second year, William H. Lacy has some sober words for the industry: Get ready for a major shakeout.

Mr. Lacy, chief executive of Mortgage Guaranty Insurance Corp., expects industrywide originations to fall by one-third either next year or in 1995, as refinancings run out of steam. Price competition will stiffen, leaving only the most nimble of players to prosper.

Mr. Lacy, 48, is in an excellent position to size up the market. His Milwaukee-based MGIC works with several thousand lenders across the company, providing default insurance and other services. Last year, it wrote $27 billion of net new insurance, accounting for 27% of the market. That was second only to the 28% of GE Capital Mortgage Insurance.

When not pulling in business, the strapping 6-foot-2 executive often takes to the woods of Wisconsin with an ax or a hunting bow. "That's my deal," he said.

Mr. Lacy recently spoke with Phil Roosevelt of American Banker.

Q.: Let's get right to the point -- where's the mortgage market headed?

LACY: I think mortgage originations will be strong for the balance of this year. Last year we had industrywide originations of almost $900 billion, and we're on that pace again. It might not be quite as high.

Then you're setting yourself up for the next two years, and I think that's going to be a different story.

Q.: How so?

LACY: We're going to see the $900 billion market drop off dramatically.

I'd say there's a 50% probability that next year's volume will drop to $500 billion or $600 billion. If it doesn't happen in '94, the probability of its happening in '95 is about 90%.

We've had a long run here with the refinancings, but it's going to run its course. It's inevitable.

Q.: Why's that? Will interest rates rise -- or is it just that everyone who's going to refinance will already have done it?

LACY: It's a combination of both. As the economic recovery materializes, short-term rates will increase and long-term interest rates will rise, at least somewhat. Secondly, people will have restructured their debt and they won't be coming back to restructure again.

Q.: How do you suppose the industry will fare when all this happens?

LACY: I think there are going to be winners and losers. Right now, there are only winners. We're really going to test some things in the market.

Q.: Who will the losers be?

LACY: They'll be the people who haven't thought about this. They'll be people who haven't strategized and invested in their back offices to become flexible.

Q.: Who will be the winners -- the giant companies?

LACY: Size isn't a proxy for who's going to succeed. It's more tied to management, ability of the company to move, technology, commitment to business. If they've got long-term commitment, if they've got adequate capital and are well managed, this will actually be opportunity. …