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Banks Increase Mortgage Hiring to Meet Home Loan Demand

NOV 21, 2012 11:50am ET

U.S. banks that have been earning record profits from home loans are adding or transferring thousands of staff to catch up with demand for refinancing after shortages blocked homeowners from getting lower rates.

Employment tied to mortgages rose 9% this year through September to 285,000, the most since 2008, according to the Bureau of Labor Statistics, as lenders responded to Federal Reserve efforts to push down borrowing costs, President Barack Obama loosened requirements, and housing recovered from a six- year slump. Even as banks added staff, they failed to keep pace, and kept mortgage rates “much higher” than they should be to curb demand, said Vipul Jain, an analyst at Morgan Stanley.

Those constraints are lifting after banks built up units to handle the highest level of refinancing since 2009. JPMorgan Chase, the biggest U.S. bank by assets, has transferred 3,500 people from servicing to mortgage originations and Wells Fargo has expanded its operations staff by at least 25% this year. The hiring comes before a potential acceleration in volume after President Obama’s re-election saw debt yields tumble and increased the possibility of expanded programs to help homeowners improve rates.

“The trend in headcount is upward,” Jain said in a telephone interview. “During the next three to six months, we’re expecting a 10 percent increase in capacity.”

Banks are adding home loan staff after the top five companies reported a record $8.35 billion in income from mortgage banking during the third quarter, according to newsletter Inside Mortgage Finance. In contrast, the six largest U.S. banks have reduced headcount by more than 25,000 in the twelve months ended in September, as regulators demand more capital and global growth slows, according to data compiled by Bloomberg.

Lenders profited as the Fed encouraged refinancing by purchasing mortgage bonds to push down borrowing costs to record lows, known as quantitative easing, or QE. While 30-year rates are 3.34%, down from 5.05% in February 2011, they could be lower based on bond prices, according to data compiled by Bloomberg.

“Capacity constraints are a big issue in the mortgage market right now and even though mortgage rates have dropped post QE3, there is more room for them to drop from here,”

The gap between rates for the loans and the bonds into which they’re packaged is 1.27 percentage points, about 59% higher than the 5-year average. It reached a record 1.7 percentage points in September.

Borrowers whose loans closed in October had an average credit score of 750, according to Ellie Mae. Homebuyers with Fannie Mae and Freddie Mac loans made down payments averaging 21%.

Some homeowners may also be postponing refinancing in anticipation that rates will continue to fall lower, which could lead a wave of prepayments that negatively impact securities tied to the loans, according to Merrill Ross, an analyst with Baltimore-based Wunderlich Securities Inc.