It's beginning to look as if the current mortgage refinancing boom will outstrip the surge that lifted the mortgage industry to record lending volume in 1993.
Countrywide Credit Industries Inc., the second-largest mortgage originator, reported this week that its pipeline of mortgages in process was a staggering $11.8 billion at Jan. 31, up from $4.4 billion a year earlier and $7.6 billion at Dec. 31. Refinancings comprised nearly two- thirds of the pipeline, double their normal share.
"The initial increase in refinancings in January was very quick," said Stanford L. Kurland, chief operating officer of Countrywide. "We didn't experience anything as rapid or dramatic in the 1993 period."
In 1993 mortgage lenders originated a record $1 trillion of loans as consumers cashed in on lower rates that gave them a chance to refinance their old loans and cut their monthly mortgage payments. Refinancing was a boon to fixed-rate lenders but proved problematic for adjustable-rate lenders-and to investors in mortgage-backed securities, who saw principal and interest income streams interrupted as loans were prepaid.
"If the first month is any indicator, and you believe rates are going to stay in this range, we could end up doing double" the 1997 volume in 1998, said A. William Schenck 3d, chairman of Fleet Mortgage Group. Fleet originated $19.5 billion of loans last year.
Early last year, refinancing was the last thing on mortgage bankers' minds. The rate on the 30-year Treasury bond was about 6.7% and was on its way to a 52-week high of 7.17% in April. The average 30-year, fixed-rate mortgage cost about 7.75%.
Last month, with the 30-year Treasury below 6% and mortgage rates hovering around 7%, Countrywide originated $5 billion of mortgages, and daily application volume averaged $525 million.
Among other major lenders, PNC Mortgage had a $1.6 billion January, which puts it on a pace to eclipse last year's origination total of $6.1 billion by May.
Principal Residential Mortgage's application volume in January was $1.8 billion, and it originated $616 million. Principal originated $7.1 billion in 1997.
One of the pitfalls of heavy refinancing in 1993 was that some lenders found themselves seriously overstaffed when rates moved higher.
Lenders say they have learned their lessons from 1993, and are trying to head off overstaffing by relying more on temporary help to handle the volume.
"One of the things we learned in the last refi boom is to remain committed to a flexible structure," Mr. Kurland said. Instead of having a huge, centralized origination network, Countrywide has more than 404 branches. Each branch has the authority to add part-time workers as needed to handle increases in volume, he said.
From September to December, Countrywide added 372 employees to its production staff, a 12% increase. The company now has nearly 3,500 production employees.
PNC Mortgage has also enlisted part-time help to deal with added volume, said Saiyid T. Naqvi, its president and chief executive.
Telemarketing centers have also played an important role in handling refinancing volume.
Fleet's telemarketing center has been flooded with calls since the first week in January, Mr. Schenck said. And it happened suddenly. One day in January the center received 2,000 calls. The next day, calls totaled 15,000.
"I don't think a tidal wave is the right way to describe it because you can see a tidal wave coming. It was more like an earthquake," Mr. Schenck said.
To handle the increase in volume, Fleet Mortgage has outsourced some telemarketing functions to its parent, Fleet Financial Group. The Boston banking company has a call center in Rhode Island.
Accubanc Mortgage of Dallas opened a telemarketing center in September to handle calls from customers in its servicing portfolio. Alan A. Avery, an Accubanc vice president who is branch manager for the center, said the company is getting an average of 2,000 calls a day about refinancing.
To speed originations, employees in the telemarketing center process these loans instead of kicking them back to Accubanc's central production staff, Mr. Avery said.
Other lenders noted technological advances since 1993.
"The automation we've installed has allowed us to handle increased volume without hiring permanent staff," said Paul F. Bognanno, president of Principal Residential Mortgage. "In 1993 we just could not do that. We had to add people."
Despite the increase in refinancings, lenders are saying their focus remains squarely on the more lucrative purchase-mortgage market. The economy's continued vigor has boosted purchase volume as well as refinancing volume.
At Countrywide, purchase volume was up 28% from January 1997. Purchase mortgage volume at PNC increased more than 25% from January 1997.
"You have to manage your sales force so that they don't just go after the easy pickings," Mr. Naqvi said.