With rates soaring, Florida community bank bails on national mortgage lending

BayFirst Financial Corp. in St. Petersburg, Florida, said it plans to get out of the national mortgage business, citing rapidly waning demand during a year in which interest rates have soared.

The $921 million-asset bank said Wednesday it had initiated the process of discontinuing its nationwide network of residential mortgage production offices. It specifically cited a "precipitous decline in mortgage volumes and the uncertain outlook for mortgage lending over the coming quarters," according to its press release.

The company estimated that the after-tax expense associated with closing the line of business would range between $3 million and $4 million. BayFirst said it would continue to originate mortgages in its local Florida markets.

"Given the impact of declining mortgage volume on the company's operating performance in recent quarters, together with the uncertain outlook for mortgage lending in the near- to mid-term, we made the difficult decision to discontinue our nationwide network of residential mortgage loan production offices," BayFirst CEO Anthony Leo said in the release.

Amid soaring inflation that topped 9% this year and reached the highest level in decades, Federal Reserve policymakers have boosted interest rates several times to make borrowing more expensive, blunt spending and ease pricing pressure.

Policymakers this week voted to increase their benchmark rate by three-quarters of a percentage point to a target of 3% to 3.25%. The hike puts the Fed's interest rate above 3% for the first time since 2008. 

The Fed has raised its interest rate by 75 basis points in three consecutive meetings and by 3 percentage points overall since March. Policymakers signaled additional rate hikes are likely yet this year.

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Mortgage banking had boomed in recent years — when rates were low — and several community banks, including BayFirst, expanded their home loan operations beyond their traditional footprints to capitalize. But as borrowing costs climb this year, demand is falling and both staffing and office costs are beginning to outstrip mortgage revenue.

The Mortgage Bankers Association said applications for new-home purchases in the week that ended Sept. 16 fell 30% from a year earlier. Refinance applications dropped 83%.

Freddie Mac said Thursday that the 30-year fixed-rate mortgage averaged 6.29% this week, more than double the year-earlier level of 2.88%.

"The housing market continues to face headwinds as mortgage rates increase again this week," said Sam Khater, Freddie Mac's chief economist. "Impacted by higher rates, house prices are softening, and home sales have decreased."