Mortgage rates near historic lows have sparked a refinancing boom, and lenders are struggling to handle the surge.
“There’s just so much volume,” says Kristin Wilson, a senior loan officer in Bloomington, Minn., for Fairway Independent Mortgage. Clients seeking lower rates now account for about half of her business, up from 20 percent a month ago. “We can’t just ramp up by hiring inexperienced people,” she says, “because they don’t know what they’re doing.”
The lending logjam extends to the nation’s biggest banks, which fired thousands of mortgage workers after interest rates on home loans rose in November through February, chilling refinancing demand. Now, the time needed to close a loan has as much as doubled, to 60 days, according to Wilson and other bankers, and lenders are holding some mortgage rates higher than they could be to slow the torrent of customers.
“Mortgage lenders have been slow to lower primary lending rates, which is likely due in part to their lack of capacity,” says Mark Zandi, chief economist at Moody’s Analytics.
Refinancing applications rose 83 percent from this year’s low in February to the week ended Aug. 26, according to an index compiled by the Mortgage Bankers Assn., a trade group. After topping 5 percent that month, the average rate on 30-year fixed loans fell to 4.15 percent in mid-August, the lowest in surveys dating to 1971 by Freddie Mac, the second-largest U.S. mortgage-finance company.
Compounding the delays are stricter underwriting and disclosure requirements put in place over the past few years, which leave no room for shortcuts, says Stew Larsen, head of the mortgage unit at San Francisco-based Bank of the West. The largest U.S. home lender, Wells Fargo, no longer hires temporary staff and outsourcing companies when applications jump because of new rules tied to the creation of a national registry of loan officers, says Franklin Codel, head of national consumer lending at its mortgage unit.
“The industry has come a long way in terms of automation, but it’s still a people-driven industry,” says Larsen. “Mortgage insurers, appraisers, and title companies, all those surrounding industries, they downsized as well.”
Lenders’ capacity to handle loan applications could be an obstacle for the Obama Administration, which is weighing options for spurring a housing recovery, including steps to promote refinancing of mortgages owned by Fannie Mae and Freddie Mac for underwater borrowers, or those who owe more than their property is worth. Refinancing can provide a boost to the economy by reducing monthly mortgage payments and putting more money in the hands of consumers. Banks can profit from making new loans at lower rates because they collect fees and other revenue. The higher-rate mortgages being retired are mostly held by other lenders or by investors in the form of bonds.
The rise in refinancing took some banks by surprise. In April, Wells Fargo said it aimed to cut 4,500 employees from its mortgage unit. Codel says the bank shut a handful of refinancing offices it had opened around the country that employed as many as 300 back-office workers each. The company is now reaching out to staff it let go and holding job fairs in an effort to add employees within a few weeks.