With some signs that the refinancing boom is slowing down, the nation's biggest mortgage bankers are expressing confidence that they won't be hurt by the reduction in volume.
The companies are using more advanced technology, hiring more temporary and part-time workers, and diversifying into "countercyclical products," to prevent their businesses from being hurt when the current refi explosion dries up.
That may happen soon. The Mortgage Bankers Association of America refinance applications index declined to 1035.3 Wednesday from its peak of 2212.6.
"Our refinancings have been falling off" in the last 60 days, said Pete Wissinger, managing director of consumer lending and servicing at Norwest Mortgage. But he said gains in loans to purchase a home have more than made up the difference.
Historically, when refinancing volume increased, companies had to increase staff, recalled Gary Gordon, analyst at PaineWebber.
After the last refinancing boom ended in 1994, he said, many companies were "getting killed because they had hired people who were now doing nothing."
"We all learned a lot of lessons," said Stan Kurland, president of Countrywide Home Loans. In the early part of the decade, "we did make a very successful transition although not as smoothly in retrospect as it could have been made."
But thanks to technological advances, the mortgage companies have not had to add as much operations staff to handle the enormous volume of this year's refi craze.
At Norwest Mortgage, for example, origination volume in the first quarter more than doubled from the fourth quarter of 1997.
But this year the company has added less than one-fifth the number of people it added to handle the 1993 boom, he said.
And these days, close to 80% of the company's daily volume is approved in 15 days or less, he estimated, whereas in 1993 it could take longer than 60 days.
Norwest now uses automatic decisioning for about half of its retail originations, Mr. Wissinger said. "We're not needing as many people to deal with these peaks," Mr. Wissinger said. "I don't believe you can run an effective employee culture if you're staffing up and then laying off."
Since 1993, Fleet Mortgage has handled surges in volume by hiring temporary workers and adding to its back-office operations. All have been either temps or employees working overtime, said Mr. William Schenck, chairman and chief executive of Fleet Mortgage Group.
Mr. Kurland and Mr. Wissinger also stressed the significance of diversifying into "countercyclical" products where demand might increase just as rising interest rates cause refi and purchase activity to slow.
For example, "when interest rates rise, rather than pay off a low interest rate first mortgage and replace it with a higher interest rate, people will take out a home equity line of credit, because only the incremental debt is subject to a higher interest rate," Mr. Kurland explained.