SAN FRANCISCO – Wells Fargo & Co., the largest U.S. home lender, is turning to former Notre Dame coach Lou Holtz and a captive audience of real estate agents to attract new business as mortgage refinancings is set to drop to the slowest pace since 2008.
Holtz, 76, who led Notre Dame to a national football championship in 1988, was to offer inspirational tips Thursday at an invitation-only program hosted by the San Francisco-based bank. Presentations by Holtz and others will be broadcast in high definition to about 24,000 Realtors in 86 movie theaters nationwide.
While this is the bank’s sixth annual “CineMeeting,” intended to bolster its relationship with real estate agents, the event is taking on added importance this year as lenders seek an edge in financing home purchases. After mortgage banking generated record profits last year, driven by a surge in refinancing, lending is poised to shrink 40 percent to about $1 trillion in 2014 from 2012, according to estimates from the Mortgage Bankers Association.
“We’re past the stage of handing out doughnuts,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication based in Bethesda, Md. “Over the last couple of years most of the major lenders have stepped up their outreach to real estate brokers. They see them as a viable channel for getting more home purchase business.”
Revenue for the largest lenders is already slumping as the pace of refinancing slows and home purchases aren’t accelerating enough to compensate. Even as Americans bought existing homes in February at the fastest pace in three years, a third of the purchases were made with cash, and underwriting remains tight, according to Lawrence Yun, chief economist at the National Association of Realtors. The supply of homes for sale in January was the lowest since May 2005, according to the Washington-based association.
Wells Fargo’s first-quarter mortgage profit fell 3 percent from a year earlier to $2.79 billion, and originations slumped 16 percent to $109 billion. JPMorgan Chase & Co.’s net income from home lending dropped 31 percent to $673 million and the pretax margin the bank gets when it sells a loan fell to about 1 percentage point in the first quarter from 1.8 percentage points in the fourth quarter, Chief Financial Officer Marianne Lake said last week. Bank of America also reported lower mortgage banking income.
“This is our way of getting in front of them and giving them the viewpoint of the nation’s largest lender,” Greg Gwizdz, Wells Fargo’s national sales manager and one of Thursday’s speakers, said in a phone interview Wednesday. “Lou is a winner. He’s somebody that people recognize and relate to and he has a good message around the discipline and what it takes to win.”
For Wells Fargo, which originated almost 30 percent of U.S. home loans last year and made almost $12 billion from mortgages, the bank’s success may have broader implications than for rivals.
“A big question is at this point in time: To what extent is Wells a one-trick horse?” said Bert Ely, an independent banking consultant in Alexandria, Va., in an interview last week. “If and when refi activity drops off, is Wells going to continue to do well?”
The purchase-refi balance
Mortgages are typically divided into those for refinancing existing loans and for home purchases. So-called refis are tied mainly to the level of interest rates; purchase mortgages to home-sale activity.
“The balance between purchase and refi will be driven by market dynamics,” Gwizdz said. “We believe, based on the message we have and the products we offer and the service we offer, that we will mirror the dynamics of the market. We’ll conduct whatever business the market happens to reflect at the time.”
In recent years, lenders have leaned on refinancings for the bulk of their originations as the Federal Reserve has kept its benchmark interest rate near zero since December 2008 and bought mortgage bonds to push down long-term rates. The average rate on a 30-year fixed-rate mortgage fell to 3.41 percent in the week ended Thursday. While that’s down from 3.63 percent last month, it’s risen from a record 3.31 percent in November.
Originations are plummeting
Originations for refinancing existing loans will drop as a percentage of total originations to 58 percent this year, or $835 billion, from 71 percent in 2012 when about $1.25 trillion of the loans were made, the Mortgage Bankers Association estimates. This year’s total would be the lowest since lenders made $777 billion in mortgage refinancings in 2008, according to the group.
Next year, the share will decline to 32 percent, or $337 billion which would be the least since 2000, according to the Washington-based group’s projections. Originations overall in 2014 will drop 40 percent from $1.75 trillion last year, the group forecasts.
That helps to explain why Wells Fargo is pushing loan officers to ensure theaters are filled for the event, titled “Shake up and wake up your winning attitude,” according to a company presentation. The bank has relied on mortgage lending to put together 13 straight quarters of earnings-per-share growth.
Realtors will watch the program from theaters such as the Union Square Stadium 14 in New York and the Century City 15 with IMAX in Los Angeles. At least one location will be offered in 28 states, the bank said.
“Let’s get informed and inspired together, so we can help more buyers and sellers achieve their goals — and grow your business,” reads the website of Wesley Boyd, a Duluth, Ga.-based loan officer for Wells Fargo, who is hosting a reception afterward at a restaurant.