The Financial Services Blog

Yesterday the American Banker reported that the mini boom in mortgage refinancing that began in December and continued in January hit a wall in February as long term interest rates started to rise again.  Fannie Mae and Freddie Mac had also raised loan to value and credit score requirements and these factors reduced the number of potential refi customers.

Ironically it has been hard for some mortgage companies to handle the uptick in refi applications because of cuts they had made as a reaction to the housing market slowdown.  These capacity problems could be eased by Xerox Mortgage Services which speeds up mortgage processing by enabling lenders and others to share and work with mortgage documents electronically.

As the Fed. continues to reduce interest rates over the coming months I expect there will be another increase in refis provided that long term rates also come down.  These lower rates may also start to free up the logjam in unsold houses and kick-start new loan applications although I suspect that will take more time.

What will the fed do next week when they meet to discuss interest rates?  The market is expecting a quarter point cut, or maybe even a second half point cut in the federal funds rate.  The housing market remains bleak and today another large decline in sales of existing homes was reported.  Today Merrill Lynch added to the bad news, reporting a third quarter loss due to write downs of nearly $8 billion for sub prime mortgages.

Declining sales, both for new and existing homes, and an inventory backlog of over 10 months of sales, mortgage companies are going to be closing fewer loans.  But with a decline in interest rates there may be an opportunity to increase refinancing, especially as many adjustable rate mortgages (ARMs) are about to flip over to high fixed rates.  However loan volumes are bound to be down from the heady days of 2004 and 2005 and this gives the mortgage companies an opportunity to streamline their mortgage origination process and cut costs at the same time.  Cutting out the paper from the mortgage process and switching to a digital loan file will speed things up, but allowing brokers, insurers and investors to have access to the loan file will increase savings and speed up the process even more.  With the recent creation of Xerox Mortgage Services there is now a solution to help mortgage companies to come throuh the current difficult market conditions and prepare for the eventual upswing in mortgage applications.