New government aid programs for troubled homeowners are forcing cost-cutting lenders, especially banks, into a tricky balancing act.
The largest mortgage servicers, including Bank of America, Wells Fargo, and Citigroup, are trying to compensate for weak revenue growth by slashing expenses this year. But their belt-tightening efforts are being complicated by a wave of new mortgage refinance applications caused in part by a revised Home Affordable Refinance Program, known as HARP 2.0.
The largest banks have agreed to revamp some of their mortgage servicing operations under a settlement with federal and state officials. The $25 billion agreement requires the banks to evaluate foreclosures more thoroughly, improve their documentation processes and make sure they have enough staff that borrowers have a "single point of contact."
Mortgage servicers often lay off and rehire employees as needed. But the increased demand on banks' mortgage operations, coming as they are trying to cut expenses, has departments fighting one another for budget dollars.
"You're going to see a temporary spike in mortgage employment over the next two to three years," says Tony Plath, a finance professor at the University of North Carolina at Charlotte. "This creates a new operating expense the industry wasn't expecting."
HARP 2.0 is already flooding the banks with refinance requests. The program, which allows borrowers to refinance regardless of their loan-to-value ratio, is expected to generate thousands of requests from borrowers.
Frank Bisignano, chief administrative officer at JPMorgan Chase, told investors and analysts on Feb. 28 that the bank expected HARP to generate significant volume through the summer.
"I think HARP 2.0 is bigger than we ever thought at the start," he said.
Paul Miller, an analyst with FBR Capital Markets, says some bankers have told him their companies were getting as many as 1,000 applications a day under HARP 2.0.
That surge in refi demand "has been way better than anybody anticipated," Miller said.
Banks have tried to keep up even as they try to trim costs. In September Bank of America announced plans to cut 30,000 jobs over the next few years under a program called New BAC.
But most of those cuts will have to pass over B of A's mortgage operations, at least for the time being, as customer demand swells. In February the company started telling some prospective customers that it would not be able to consider their refi request for 60 to 90 days.
B of A has scrambled to staff up or reassign other employees, and is retraining 500 employees at a Maryland facility to handle refinance requests instead of credit card collections.
In March the bank had hired 300 more employees to process refi applications, and since first accepting applications in January, it had received 20,000 requests for modified mortgages.
