"US banks swamped as refi fever takes hold
By Greg Farrell and Saskia Scholtes in New York
Published: May 13 2009 19:44 | Last updated: May 13 2009 19:44
The rush of US homeowners to refinance mortgages at lower rates is creating a boom in the home lending business, prompting banks to hire thousands of new employees and put them to work on extra shifts to process mountains of paper.
“Many of them work all day, go home and have dinner with their families, then go back to the office and put in a few more hours, because there’s work to be done,” said Greg Gwizdz, national sales manager of the Wells Fargo home mortgage unit.
Lenders could originate up to $2,780bn of new mortgages this year, the Mortgage Bankers Association says. Statistics from mortgage financiers Fannie Mae and Freddie Mac suggest 80 per cent of that activity could involve refinancing.
With interest rates for 30-year fixed rate mortgages at around 5 per cent, US homeowners could save close to $18bn on their mortgage repayments this year if they refinance, according to economists at Freddie Mac.
The process is taking longer than in past booms because of the disappearance of easily handled “no-documentation” mortgages - a product that played a signficant role in causing the subprime lending crisis.
Ken Lewis, Bank of America chief executive, said on Monday his company was adding 6,000 workers to beef up its mortgage capabilities. Wells also has added mortgage staff, although it won’t give out specific numbers.
However, even with extra workers, brokers are struggling. “It’s amazing how much paperwork is involved for each application,” said Sandy Wagner, a mortgage broker with Preferred Empire. “It’s hard for the brokers to keep up.”
Customers, too, have been frustrated by processing delays. “It’s a challenge”, said Mr Gwizdz of Wells, which handled $83bn in mortgage applications in March alone. “Consumers need to understand that and have proper expectations. The days of taking it from application to close in 30 days right now are over”.
However, Guy Cecala, publisher of Inside Mortgage Finance, said the diminishing number of lenders would create fatter profit margins for banks than in past refinancing booms. “Historically, the mortgage industry has not made money on the origination side”, he said. “But today, it’s a lender’s market as opposed to a borrower’s market. We haven’t seen that in a long time.”