Demand for home mortgages and refinances is surging, but banks are responding too slowly and aren’t hiring enough staff, according to NBC News, and this could undermine the Federal Reserve’s $40 billion stimulus plan.
NBC News reports:
The dysfunction in the mortgage market, which has yet to fully recover after its battering in the U.S. housing bust and subsequent financial crisis, means most benefits from the Fed’s new stimulus plan may be accruing to banks instead of consumers.
Capacity constraints work in the banks’ favor. Profit margins for home lending are more than double their usual level, JPMorgan Chief Executive Jamie Dimon told investors last Friday. The major U.S. banks, including JPMorgan Chase & Co, Wells Fargo & Co and Citigroup Inc, all said mortgage operations boosted third-quarter profits.
Lenders making mortgages say they do not want to hire too many staffers only to lay them off when volume declines.
“We are trying to…not over hire,” Andy Cecere, chief financial officer at U.S. Bancorp, said in an interview on Wednesday.
Mortgage applications are also jumping, rising nearly 17% in the week ended Sept. 28. With demand that strong and no staffers to handle extra business, banks have little reason to cut rates much.
Mortgage demand was rising even before the Fed announced its latest plan to buy home loans, but that announcement immediately lowered bank funding costs. The effect on bank revenues will take longer to show up, because it takes months to process and close mortgage applications.
For consumers, capacity constraints among mortgage lenders mean rates are not falling as much as they theoretically could.
Written by Jason Oliva