As Mortgage Interest Rates Fall and Borrowers Go Online to Refinance, Are Lenders Ready for the Next Refi Boom?

Market Wire, December, 2008

Mortgage interest rates are falling to near-historic lows, and home affordability is the highest since 2002(1). Consumers are refinancing at a pace not seen since the "refi boom" of 2003 to 2005; and if rates keep falling, the new wave of refis could get even bigger. Now lending managers are asking themselves, "Can our staff handle this volume?" And consumers are wondering, "How can we gain easy access to today's mortgage bargains?"

Scott Happ, President/CEO of Mortgagebot® ( www.Mortgagebot.com ), has one answer for both questions: Use the Internet.

Mr. Happ says that modern, online, point-of-sale (POS) mortgage-origination systems, such as Mortgagebot's industry-leading PowerSite® product family, are what lenders need to handle rising volume -- and what consumers need to efficiently shop and apply for loans. He cites the success of Mortgagebot's 800-plus clients as proof.

Gregg Formigoni, Vice President and Mortgage Department Manager at the $245 million-asset, 12-branch Illini Bank and Trust of Springfield, Ill., said that the implementation of Mortgagebot PowerSite is a key factor in his department's ability to keep pace with rising mortgage volumes.

In an interview in the American Banker, Formigoni said, "The rate drop last week has definitely increased our application volume. We already have closings [set] for around Christmastime(2)."

When asked how PowerSite helps his Bank meet rising demand, Mr. Formigoni noted how PowerSite provides immediate conditional approval for Fannie Mae-qualifying applications -- which used to take 48 hours. "PowerSite [is] central to... our mortgage business," he said.

Changing mortgage market; increasing mortgage volume

The Thanksgiving holiday did not squelch consumer desire for lucrative refi opportunities. News that the Federal Reserve would purchase $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae immediately "drove down interest rates... [to] 5.25 percent to 5.375 percent, sparking a surge of interest from homeowners(3)."

The New York Times cited a Mortgage Bankers Association of America (MBA) refi report from Thanksgiving week showing that refi activity tripled in comparison to the previous week and increased by almost 38 percent over the same week in 2007(4).

Now some lenders are wondering if they are insufficiently staffed to handle the rising volume of mortgage applications(5).

"Lenders with an interactive, fully transactional online lending channel -- such as Mortgagebot's clients -- are the only ones that are positioned to profitably absorb the current volume of mortgage-loan activity," Mr. Happ affirmed.

"Our more than 800 clients include a wide range of community bank and credit-union lenders," said Mr. Happ. "For many months now -- and with no media fanfare -- these trusted, local lenders have seen their mortgage volumes climb steadily as rates have fallen, mortgage brokers have faded away, and the big subprime players have been struggling to survive."

Consumers now prefer the online mortgage channel

"Perhaps even more significant than today's falling interest rates is how modern consumers are responding," observed Mr. Happ. "They're doing most of their shopping and applying for mortgages over the Internet."

Mr. Happ cited a recent study by Deloitte Consulting, which reveals that borrowers now prefer the online mortgage channel -- in fact, consumers of every demographic segment now use the online channel first when mortgage shopping(6).

"It used to be that only big, national lenders had sophisticated, interactive mortgage-application Web sites -- but that was then," he said. "Now, because advanced online technology is so affordable and easy to implement, banks and credit unions of every size are gaining new mortgage business from the online channel."

With today's sophisticated online technology, mortgage shopping no longer has to be a time-consuming exercise in frustration -- which means no more waiting for an overburdened loan officer, or being kept "on hold" by a busy call-center representative. Consumers can now go to a lender's mortgage Web site "24/7/365" and get an accurate quote in seconds.

And if they select a lender with an intelligent, fully transactional mortgage Web site, consumers can accurately complete an entire mortgage application, get pre-approved, and receive all required disclosures -- in as little as 20 minutes.

Mortgagebot clients: 'Want to refi? We're online, ready for you 24/7.'

When the last refi "boom" started in 2003, applying for a mortgage online was far from the norm; few lenders even offered such a capability. But in the last five years, the market has undergone a sea change in consumer preference.

"Less than 60,000 mortgage applications were processed through all of our clients' Web sites from January to November of 2003," recalled Mr. Happ. "But from January to November of 2008, we've seen volume increase by a factor of seven, to nearly 400,000 applications. On 'Cyber Monday' alone, our clients' Web sites saw 175,000 rate searches -- one of the 'top ten' busiest days in Mortgagebot's 11-year history."