‘Brexit’ boosts mortgage applications; Milken as mythic hero

There certainly were casualties of last month’s landmark Brexit vote – think British mutual funds – but among some of the earliest beneficiaries have been American homeowners looking to refinance their mortgages, and the lenders providing the capital.

Investors have piled into super-safe U.S. Treasury bonds after Britain’s vote June 23 to leave the European Union, pushing yields on 10-year notes this week to below 1.4% for the first time on record. And with mortgage rates tied to that yield, the average rate for a 30-year mortgage fell to 3.41%, mortgage giant Freddie Mac reported Thursday.

That’s a level not seen since April 2013, and just a hair above the all-time low of 3.31% in late 2012. All that cheap money has prompted homeowners to refinance older, higher-interest loans, causing a surge in loan applications nationwide, according to the Mortgage Bankers Assn. trade group.

During the week ended July 1 – the first full week after the Brexit vote – the volume of refi mortgage applications climbed 21% from a week earlier, according to MBA figures.

“It’s been a busy last couple weeks,” said Bryan Sullivan, chief financial officer of Foothill Ranch lender LoanDepot, one of the nation’s largest mortgage lenders. “It’s hitting us from all sides. We’re in the heart of the home-purchase season, and now we’ve run into this refi boom.”

Still, while more volume is good for LoanDepot and other lenders, Sullivan said big jumps are difficult to handle.

“It’s always boom and bust in the mortgage industry,” he said. “When things are good, you go hire a bunch of people. Then when things change, you have to make some hard decisions.”

Borrow, repay, repeat

Consumer advocates and the Consumer Financial Protection Bureau have all manner of problems with payday lenders, saying their short-term loans are too expensive, lead to excessive bank overdraft fees and lack any kind of underwriting.

But the biggest complaint is what the CFPB calls a debt trap: Customers take out loans because they’re strapped for cash, but when payday comes and the loans are repaid, they’re short of funds once more and have to borrow again.

A report issued last week by the California Department of Business Oversight, which monitors state payday lenders, adds to an already significant body of research backing up that complaint.

The report, based on annual filings from more than 200 payday lenders licensed in the state, shows that 32% of payday loan borrowers took out at least 10 payday loans last year while 22% of borrowers took out only one loan. More than half of borrowers in the state took out at least five loans.

What’s more, about 70% of repeat customers took out a new loan within one week of paying off a previous one.

The figures “raise questions related to the debt-trap issue that is central to the debate over proposals to more strictly regulate the industry,” Department of Business Oversight Commissioner Jan Lynn Owen said in a statement accompanying the report

The CFPB has proposed a raft of new rules for the payday lending industry, including ones that would limit the number of loans that customers can take out in a year.

The Consumer Financial Services Assn. of America, a trade group for the payday lending business, has said the new rules will cut off access to emergency credit for millions of Americans.

Spokeswoman Amy Cantu said the group rejects the notion of a debt cycle or debt trap, saying consumers who take out payday loans are using them to pay other bills.

“They are arguably better off for having taken the loan as they may have been worse off if they had not paid that debt or incurred more costly overdraft charges or late fees,” she said in response to the report.

Milken as myth in La Jolla

A group of young Jewish financiers from California set out to buy a massive, struggling East Coast conglomerate. But they, and the junk bonds they employ to fuel the deal, are looked down on by the company’s waspy management – and the deal quickly turns hostile.

Change a few details and this could be the story of any number of big deals of the 1980s, when upstart entrepreneurs, backed by the likes of high-yield bond king Michael Milken and the Beverly Hills office of pioneering investment bank Drexel Burnham Lambert, used leveraged buyouts to take on the corporate establishment.

It’s also the story told in “Junk: The Golden Age of Debt,” a new play by Pulitzer Prize winner Ayad Akhtar. It will debut later this month at the La Jolla Playhouse before, Akhtar hopes, heading to Broadway.

With “Junk,” Akhtar said he wanted to tell a broad tale about the financialization of modern American life – about the rise of money as not just a tool but a product unto itself – through a fictional, even mythic retelling of the high-flying days of the 1980s.

That was a time, he said, when many of today’s rules and mores about business and money were not yet settled, allowing a creative class of outsiders – Milken chief among them – to help shape the modern financial world.

“The Revlon deal, the RJR Nabisco deal, they’ve become mythic stories, and these guys have become heroes,” Akhtar said, referring to two of that era’s big, precedent-setting buyout deals financed with junk bonds.

Though the play hearkens back to those days, it is not about Milken or Drexel or any other specific players. Rather, Akhtar said he’s taken some of the archetypal characters of that period to tell a story about the world they helped create.

“I think [Milken’s] a genius. But those who come to the play looking for a straight line to him might be disappointed,” said Akhtar, whose play “Disgraced” won the 2013 Pulitzer for drama.

“Junk” opens July 26 at the La Jolla Playhouse and runs through Aug. 21.

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