Major Lenders in the U.S. Unprepared for Sudden Mortgage Spikes

by 26 Oct 2012

(TheNicheReport) -- When the Federal Reserve Bank announced its third round of quantitative easing (QE3) a few weeks in mid-September, mortgage interest rates responded timidly. The economic stimulus portion of QE3 is squarely aimed towards major lenders since it seeks to purchase mortgage-backed securities (MBS). These major lenders, however, may not be adequately prepared to offer the MBS supply the Fed is looking for. 

Hiring Patterns

Banks are not entirely convinced that the mortgage market will experience a significant rebound. This is made evident by the recent hiring patterns of mortgage lenders. The current volume of mortgage applications handled by major lenders is just a fraction of what they experienced at the height of the housing bonanza of the early 21st century. Even with these lower volumes, the pipelines of pending applications are more than what they can handle. 

Major lenders have not been adequately staffed for processing mortgage applications since they struggled to stay afloat in 2008. One of the reasons for their reticence to boost their hiring is uncertainty. Banks are no longer confident that a spike in mortgage applications will retain momentum, and thus they do not risk hiring a significant number of employees that could be laid off when volume drops. Major lenders are in the public eye more than ever, and massive layoffs can easily turn into public relations nightmares. 

Stimulus Benefits Banks More Than Borrowers

Average home shoppers can expect low mortgage interest rates to continue until 2015 unless the U.S. economy enjoys an unexpected windfall. Home prices are bound to improve except during heavy periods of foreclosure repossession. Borrowers still have to clear the hurdles put into place by tight lending requirements, and their sole benefits will derive from lower Annual Percentage Rates (APR). 

For major lenders, however, the QE3 prospect means handsome profits. As recently explained by the CEO of JP Morgan Chase, profit margins from mortgage lending operations have almost doubled thanks to the housing recovery and the Fed's stimulus. Keeping their overhead low by not hiring too many workers in their mortgage divisions is another way to protect their profits. 

Even if mortgage processing times increase as a result of increased volume, banks can be confident that the Fed will keep its MBS purchase promise, at least for a while. Banks have factored refinance projections for the next few months, and they can expect steady profits even if home purchasing comes to a sudden stop.



Is TILA-RESPA a good or bad thing long term?