Lenders Struggle with Mortgage Refinancing Boom

Aug 23rd, 2011 @ 5:35 AM by Debbie Dragon

Mortgage rates have reached historically low levels, with the average 30 year fixed loan interest rate coming in at 4.15% – and has resulted in large volumes of homeowners looking to refinance their mortgages to secure a lower interest rate. Lenders are struggling to keep up with the number of refinance applications coming in.

The Mortgage Bankers Association shows the number of mortgage refinance applications have increased 83% since February. Some lenders are holding their mortgage rates higher than the average simply to slow down the number of people applying for mortgage refinances. During the housing market bust, many lenders downsized their operations and laid off or reduced the size of their workforce. Wells Fargo cut 4,500 employees from the mortgage unit in April, while Bank of America trimmed 1,500 employees and 2,000 contractors. The result of the necessary downsizing is currently making it difficult for most lenders to keep up with the demand for refinancing.

Many lenders who typically close loans within 30 days are reporting delays that may take as many as 45 or 60 days to reach closing. An article on Bloomberg.com reports:

Wells Fargo has sometimes offered less competitive rates because “we look at it all around the country and there are times when we do that to control volume,” Codel said. The bank has stopped offering the option to lock in rates for 30 days, as a way to curb consumer expectations that loans will close that quickly. Longer rate locks, which it continues to provide, can cut down on applications because they carry higher rates, he said.