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Refinancing rush helps banks amid foreclosure mess

October 28th, 2010 7:56 PM by Lehel S.

Refinancing rush helps banks amid foreclosure mess

 

A rush by U.S. homeowners to refinance at near record-low interest rates marks a rare bright spot for the mortgage industry, under attack for choking the economy with shoddy loans and botched foreclosures.

Wells Fargo & Co., the biggest U.S. mortgage lender, received $194 billion of loan applications in the third quarter, the second-most in its history, Chief Financial Officer Howard Atkins said last week. About 80 percent were to refinance. Bank of America Corp. CFO Charles Noski said lending margins are up and demand should remain robust through year-end.

As the Mortgage Bankers Association opened its annual conference Monday in Atlanta, lenders that survived the real estate crash were finding the pickup in refinancings overshadowed by a national foreclosure investigation and fresh investor efforts to force loan buybacks. They are also concerned that new consumer-friendly regulations will be burdensome.

"After 22 years of fielding our survey of attitudes and behavior, I have never seen lenders respond with such uncertainty," Jeff Lebowitz, founder of Mortech LLC, said in an e-mail after the research firm released its yearly survey of industry executives this month.

The report found that two-thirds of firms with annual lending volume of more than $5 billion expect that the issue affecting them the most in the next year will be adapting to rules created in response to the global financial crisis, which was caused by record defaults on housing debt.

Adapting to changes

Mortgage lenders feel like comic-strip character Charlie Brown, John Courson, president of the Mortgage Bankers Association, said Monday at the group's conference. "We've got a lot of 'Lucys' in our life these days, people who, just as we think we're moving down the field, pull the football out from under us."

The Dodd-Frank bill passed this year seeks to rein in predatory lending by requiring banks to make a "reasonable and good-faith" determination that borrowers are able to repay some kinds of loans. It also instructed regulators to define which types of mortgages banks can make and package into bonds without retaining a slice. In addition, the bill created the Consumer Financial Protection Bureau, which will have the authority to regulate "unfair, deceptive or abusive" mortgage transactions and other credit products.

Changes related to mortgage disclosure and fee requirements in an update of the Real Estate Settlement Procedures Act are among the most challenging for lenders, said Wil Armstrong, chairman of Cherry Creek Mortgage Co., which made $3.4 billion in home loans last year.

"The industry can't absorb change after change after change," he said.

Refinancing applications have more than doubled since the start of the year, hovering for the past 10 weeks near levels not seen since May 2009, according to Mortgage Bankers Association data. Rates for 30-year fixed-rate loans declined to 4.19 percent in the week ended Oct. 14, according to Freddie Mac, the lowest since it began tracking the data in 1971.

More profit per loan

With fewer competitors in the market, per-loan profit on making and selling mortgages is rising, with the difference widening between average rates on new loans and yields on Fannie Mae-guaranteed bonds into which they can be packaged. The gap is about 1 percentage point, up from about 0.45 of a percentage point a decade ago, according to data compiled by Bloomberg.

Not all applications are turning into new loans. Many consumers can't qualify because of tightened lending standards or because their homes are valued at less than their existing mortgages, a situation known as being "underwater" that is a major obstacle to a real estate recovery.

Depressed home sales

Completed refinancings in the third quarter were an estimated 56 percent below the second quarter of 2004, after applications earlier that year touched similar levels, data from the bankers group show.

Meanwhile, home sales remain depressed.

Compared with a year earlier, existing home sales were down 19 percent in September before adjusting for seasonal patterns, the National Association of Realtors said Monday. Sales fell to a 4.53 million annual rate, exceeding the 4.3 million pace that economists forecast, according to the median projection in a Bloomberg News survey.

Posted in:General
Posted by Lehel S. on October 28th, 2010 7:56 PM

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