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Mortgage applications fell last week as interest rates rose slightly and falling demand for refinancing offset an increase in purchase applications.
October 10 -
Much has been written about the refi boom, but one avenue not explored deeply is the "multiple" refi client — the consumer who refinanced in the last couple of years who's again coming to the well.
September 18 -
Leaders of small banks do not want the Fed to purchase more bonds or keep interest rates low. Instead, they want the Fed stand down and let the economy heal on its own.
September 12
A spike in refinancing activity has caused an increase in fee income at community banks, while creating a need to hire workers to deal with applications and originations.
The big question looming over many banks is what to do with those “permanent” employees once the refi market cools down.
“There are never enough guys when business is good, so you hire more people,” says Anton Schutz, the president and chief investment officer of Mendon Capital Advisors in Rochester, N.Y., which has about $137 million under management. “When business goes bad, you’ve got to change things.”
Refinance activity is brisk right now, hitting a three-year peak at the end of September, according to the Mortgage Bankers Association. The association attributed about a quarter of refinancing applications to the Home Affordable Refinance Program, or Harp.
The Federal Reserve Board’s latest round of quantitative easing, in which it buys mortgage-backed securities, has also been a factor.
Several community banks have hopped on board the refi train. At PlainsCapital Bank, a $5.8 billion-asset bank in Dallas, 1-to-4 family residential mortgages grew 46% from a year earlier, to $1.2 billion at Sept. 30.
EverBank Financial (EVER) in Jacksonville, Fla., and Berkshire Bank, a unit of Berkshire Hills Bancorp (BHBC), also grew mortgage loans by more than 40% in the third quarter, compared to a year earlier.
There are already signs of a cool down in refi activity.
Mortgage application volumes have declined since September, prompting some industry observers to ponder when banks will reassess staffing levels. In many cases, banks have hired too many permanent employees to deal with the crush of work, says Scott Petty, a recruiter at executive search firm Chartwell Partners.
“Smarter banks will be using temporary staff to cover that area,” Petty says. He declined to identify specific banks.
During last month’s round of quarterly earnings conference calls, analysts peppered executives with queries about staffing levels. Collyn Gilbert, an analyst at Stifel Financial, asked executives of Investors Bancorp (ISBC), about its jump in mortgage revenue during the Short Hills, N.J., company’s Oct. 26 conference call.
“We are focused on … creating relationships in the marketplace with attorneys, creating relationships with Realtors [and] appraisers,” Kevin Cummings, Investors Bancorp’s president and chief executive, responded.
“We are striving to have a profitable, strong mortgage company, after this blip of refi,” Cummings said before pausing. “Well, last year we thought it was going to end. This year, it’s still going strong.”
Valley National Bancorp (VLY) echoed that sentiment. Gerald Lipkin, the Wayne, N.J., company’s chairman, president and chief executive, characterized the mortgage business as “scalable.”
Refinance activity is “a great opportunity for us to maintain our earnings. We’d be foolish not to take advantage of it,” Lipkin said during an Oct. 28 conference call. “Aside from the short-term, upfront earnings, we are building a servicing portfolio … that will be an annuity into the future.”
It is unlikely that application volume for new home purchases will be strong enough to support the higher payrolls at some banks. “Yes, traditional mortgages will come back, but [these banks] still will be overstaffed in those back office areas,” Petty says.
Investors are scrutinizing higher expense levels at some banks.
During an Oct. 25 earnings call, EverBank’s executives attributed a third of the company’s rise in costs in the third quarter to hiring 150 people. Michael Rose, an analyst at Raymond James, asked executives if they would be able to support the “increased number of hires” when refi activity dies down.
The hiring is “primarily targeting more purchase-oriented business, which should be more visible and sustainable over the longer haul,” Blake Wilson, EverBank’s president, said.
EverBank has hired 350 permanent employees for its retail mortgage business this year, says Tom Wind, the executive vice president of residential and consumer lending. EverBank also uses temporary workers for some back-office functions. The company does not retrain lenders from other areas, such as commercial lending, to handle the influx of mortgage business.
“We don’t really go down [the retraining] path,” Wind says. “We’re only hiring experienced mortgage professionals,” primarily from other banks, though EverBank has hired some staff from smaller mortgage lenders.
The $16.5 billion-asset EverBank expects the talent it has added will reap dividends in a growing economy, spokesman Michael Cosgrove said in an interview.
EverBank has hired “very experienced, very seasoned loan officers” across the country, so it will be ready for a rebound in traditional mortgages, Cosgrove said. “Obviously we’re doing a lot of refis, but we’re also trying to position for the future when the market moves toward a purchase market.”
