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Monday, January 5, 2009

Mortgage Applications Surge on Falling Rates

As posted by: Wall Street Journal

Bankers are seeing a wave of mortgage-loan applications triggered by falling interest rates, and are reassigning scores of workers to handle the crush of would-be borrowers.

A large percentage of the applications are for refinancings rather than purchases, and the phenomenon is so new it isn't yet clear how many of the borrowers will actually receive loans. But some bankers say it could be the beginnings of a possible turning point in a battered lending sector and a still-weak housing market.

Borrowers "are starting to say, 'Wow, I can get this piece of property at this price, which is a fair amount lower than I could have gotten a year ago,"' said Todd Chamberlain, head of the residential mortgage division at Birmingham, Ala.-based Regions Financial Corp.

The nation's largest mortgage provider, Bank of America Corp., is among the most optimistic. Chief Executive Kenneth Lewis has predicted that housing prices will stabilize by mid-2009. The Charlotte, N.C., bank recently told 300 loan processors in Richmond, Va., and Tampa, Fla., to switch from home-equity loans to mortgages starting Monday. Mortgage applications nearly doubled through the first half of December as compared to the same period in November, said Bank of America spokesman Dan Frahm.

Because of its acquisition this year of California home lender Countrywide Financial Corp., Bank of America was No. 1 in mortgage originations during the third quarter, with $51.5 billion. It also provided $7 billion in home-equity loans during the same period, but those lines of credit aren't as popular now that many U.S. borrowers owe lenders more than their home is worth.

The uptick in potential mortgages may help mitigate government pressure on banks to increase lending after receiving billions in U.S. aid. But it's too early to tie the wave to the larger economy or a potential housing recovery, as the requests are largely refinancings.

How many of the new applications wind up as actual mortgages remains to be seen, and some borrowers may not qualify. Loans may also take longer to process now that lenders are more careful about documentation and appropriate credit standards. Also, some borrowers may pull their applications, thinking rates could still go lower.

"We don't know now what the approval rate will be," said Tom Kelly, a spokesman for J.P. Morgan Chase & Co. The New York lender isn't adding any new employees to deal with the increase in applications, which had doubled prior to the Fed rate cut last week. After the Fed cut, volume went up another 20% to 25%, Mr. Kelly said.

Still, the application frenzy has been one of the first bright spots for banking in months.

Borrowers flocked to take advantage of falling rates following the Federal Reserve's commitment to stabilize the market by purchasing mortgage bonds and possibly Treasury bonds. The moves drove mortgage rates down by roughly three quarters of a percentage point. After this past Tuesday's move by the Fed to cut its benchmark rate to near zero, mortgage rates briefly fell to their lowest level since the 1960s, according to HSH Associates. And rates ended the week with an average 5.17% for a 30-year loan, the lowest average since Freddie Mac began its weekly rate survey in 1971. A year ago the 30-year-loan averaged 6.14%.

Thus far, though, borrowers have been more interested in refinancing existing home mortgages than making new purchases, which are typically less sensitive to interest-rate movements.

Whether Bank of America, which intends to cut 30,000 to 35,000 companywide positions over the next three years, hires new workers to handle the rising mortgage-application volumes "has not been determined," Mr. Frahm added.

In the Southeast, Regions is also shifting employees who process loans from home equity to mortgages. At a Nashville, Tenn.-based processing center, Regions recently added seven workers to a 50-person operation, five of them taken from other areas of the company, one a new hire and one a contract employee. Applications are up almost triple from November, said Regions's Mr. Chamberlain.

In the Midwest, Minneapolis-based U.S. Bancorp also will likely add to its mortgage work force via temporary hires, said Dan Arrigoni, head of the bank's mortgage division.

"We are trying to do all we can to handle the volume," he said, noting that applications for home loans jumped from 11,000 during a 13-day stretch in November to 30,000 during the same period this month.

At Atlanta-based SunTrust Banks Inc., purchase applications rose only "slightly" in December, while refinancing applications more than quadrupled, said spokesman Hugh Suhr.

Home-purchase requests were just 24% of the total application volume so far this month at Bank of America and 25% at Regions. But such requests are still well above their usual levels for this time of year, bankers said.

December is "horrible normally," said Mr. Arrigoni. "People are out Christmas shopping. They have everything on their mind but home buying." For people waiting to purchase a home, the recent drop in rates "might have moved them off dead center."