Suddenly, mortgage broker Mark Livingstone is working weekends and spending his meager free time reading resumes because he needs help handling the crush of refinancing applications.
Rates for 30-year mortgages are at their lowest since late 2016, sending many previously hesitant homeowners to their brokers. Under normal circumstances, new-home purchases make up 70% of the business at Cornerstone First Financial, Livingstone’s Washington, D.C.-based company. These days, it’s 70% refinancing.
“It’s one of the busiest we’ve ever been,” said Livingstone, a 25-year industry veteran who moonlights as a volunteer firefighter. “I almost don’t have the manpower to keep up with it.”
There’s evidence that part of the reason Livingstone and his broker colleagues are so busy is the shrinking of Wall Street’s mortgage units.
Banks let thousands of workers go in recent years, so they have fewer staffers on hand to process refinancing applications.
Now they have to hire workers again, but they’re doing it slowly to avoid having to lay off people soon after adding them. That’s part of the reason why lenders have been slow to cut mortgage rates, even as the Federal Reserve eases the money supply and other borrowing rates across the economy are falling.
“Banks have no reason to slash rates to the bone to bring people through the door,” said Keith Gumbinger, vice president of mortgage-data company HSH.
Even so, at 3.6%, 30-year residential-mortgage rates are the cheapest they’ve been since November 2016. At around these levels, some 10 million people could shave at least 75 basis points from their mortgage rates by refinancing, according to analytics firm Black Knight.
Homeowners have noticed. A Mortgage Bankers Association refinancing index jumped 12% in the week that ended Aug. 2, and searches on Google for mortgage refinancing rose 54% recently, according to a Wells Fargo report that suggests the refi boom will continue over the near term.
Mortgage brokers say they’re up at 2 in the morning counseling borrowers who are agonizing over whether they should refi now or wait for rates to fall even more.
They may have reason to hold off. Ten-year Treasuries, which tie closely to mortgage rates, have fallen to nearly the lowest levels since the 2016 presidential election as a trade war rages, negative yields proliferate overseas and a series of central bank moves spark concerns about global growth.
“Every day in the last week or 10 days there’s been more bad economic news,” said Mark Goldman, a loan officer at C2 Financial in San Diego. “How many other shoes are going to drop to push rates down?”
Goldman said he’s advising clients leaning toward refinancing to do it soon. Since he started in 1991, he said he’s noticed most borrowers who try to time the market mess up and don’t come calling until rates begin to rise again.
Ben Coulter, a branch manager at AMEC Home Loans in Minneapolis, said he noticed an uptick in refinancing starting about six weeks ago. The surge in interest has pushed the time it takes to close on the mortgages to about 45 days from about 30 when business is slower. He’s pulling 16-hour days and sending emails at odd hours, sometimes to clients who bought their homes less than a year ago. He said one customer who bought in November has refinanced, reducing his monthly payments by $250.
“The amount of savings out there for people who even closed last fall is amazing,” Coulter said.
Refi booms, however, carry risks for mortgage-backed securities.
When a home loan is refinanced, the original mortgage is paid off and removed from the security. Faster prepayments can hurt investors that paid more than 100 cents on the dollar for mortgage bonds because they get their principal back sooner than expected and at par, cutting into returns. Prepayment speeds on Fannie Mae bonds backed by 30-year mortgages across interest rates rose 29% in July.
What’s a problem for investors is an embarrassment of riches for mortgage companies, which are also dealing with the typical seasonal increase in home buying.
“I can’t wait for January to come so I can go on vacation,” Coulter said.