Sagging mortgage rates put stress on bank operations

CNY Business Journal (1996+), Dec 21, 1998

Duty in the mortgage-lending operations of most banks these days might qualify employees for hazardous-duty pay, or at least an award for service above and beyond the call of duty. Their jobs have been made considerably more challenging this year by two factors: pent-up housing demand and sagging interest rates.

The convergence of those two factors has caused a boom in the mortgage-lending business. Thus, employees are working 10- and 12-hour days, and taking paperwork home to complete in the few hours that they are not technically on the job. At least, that is the experience that John Petrus, residential lending officer in Chase Bank's Syracuse office, has endured for the last seven or eight months.

"I've been in the office until 9 p.m. almost every night to return phone calls. I am not even answering the phone at my desk anymore. I just let them go into voice mail, then I return the calls in the order they came in, trying to make contact within 24 hours of receiving the call. And after the phone calls, I generally work to midnight at home on paperwork," Petrus says.

He is not alone. M&T Bank reports a boom, as do virtually all-the mortgage-lending operations of banks in Central New York.

Nicholas Buscaglia, vice president of residential lending for M&T Bank, reports that the bank has increased hours and staffing in its production offices, including the Albany office, which services the Syracuse area.

"We are doing more than double the business that we did last year," Buscaglia says.

Petrus, who has been in the mortgage-lending business for the bank for nine years, says that the pace of business had been increasing from mid-1997. In 1998, however, the pace of the increase in volume picked up dramatically in late January from 1997's healthy numbers.

"There have been a lot of new mortgages, but there has been a real flood of refinancing. And as busy as we have been all year, it has really exploded in the last two or three weeks. In fact, I have some customers who are on their second or third refinancing," Petrus says, adding that such actions make sense when the borrower can shave even half a percent from his interest rates. "On a $500,000 loan, that can make a difference of $500 a month in their payments. Even on a $100,000 loan, it cuts their payment by about $100."

Simply increasing the workload for staff is not an effective tactic in dealing with the glut, even though it has been necessary, he notes. In addition to increasing the workloads, M&T and other banks are fine-tuning the mortgage-lending process to make it more efficient. Part of M&T's approach, Bus-caglia says, is embodied in "alternative documentation loans."

He explains, "We have trained our staff to work with customers so that when they come in to do the actual application for the loan, they will be prepared with all the information that the loan officer is going to need. They can bring their bank statements, their pay stubs, and whatever other information may be relevant in making the decision. That way, we eliminate the need to wait for information to be mailed to us. That can shave weeks off the process."

The other tactic that M&T is employing is the aggressive use of automated underwriting. That process sets parameters for a range of information about the applicant and his finances. A computer program reviews the information, and makes a preliminary decision based on whether the applicant's financial and credit situation falls within the appropriate ranges.

These kinds of adjustments to the underwriting and approval process shave days or weeks from the time it has taken to go from application to decision in the past, according to Buscaglia.

Even with such changes at M&T and other banks, however, the current level of business does pose a challenge.

In addition to the workload, banks also have to look at ways to minimize the potential squeeze on their own financial performance as interest rates on mortgages and other loans fall. That narrows the gap between the interest rates the bank receives on loans and the interest rates that it pays depositors. Chase spokeswoman Julie Van Benthuysen says, however, that Chase and most other banks have limited their exposure to this kind of interest-rate risk.

"We and other banks package our loans into mortgage-backed securities and sell them to investors" or to other companies that buy mortgages and then collect the payments and service the loans, Van Benthuysen explains.

M&T's Buscaglia, however, notes that M&T only sells the mortgages that it generates in markets where the bank does not have branch operations. "We do package the loans that come to us from other markets, though. In the communities where we do have branches, we want those mortgages to be part of our building close relationships with our customers," Buscaglia explains.

Still, the low mortgage in-terest rates pose little problem for most banks, he adds, because the banks have developed other income sources, both investments and fee-based services, that make their revenues less dependent on the difference between loan interest rates and interest rates on deposits.