Just as Jane Fraser was named chief executive of CitiMortgage nine months ago, the mortgage industry was undergoing a seismic shift as refinancing activity began its free fall.
The O’Fallon, Mo.-based unit of Citigroup, the country’s third-largest bank by assets, relied on mortgage refinancings to account for a bulk of its business for several years. But as interest rates began to rise last year, refinancings fell, prompting changes in business models and layoffs for many companies, including CitiMortgage.
“The day I started at CitiMortgage was the day the market started responding to the [Federal Reserve], and inevitably was the end of the refi boom,” said Fraser, who became CEO in May.
The change has been dramatic. Refinancings accounted for 78 percent of all mortgage applications a year ago, and that’s dropped recently to 61 percent, according to the Mortgage Bankers Association, a Washington-based trade organization.
The average interest rate for a 30-year loan, while still at historical lows, hit 4.33 percent by mid-February, according to mortgage buyer Freddie Mac, the Federal Home Loan Mortgage Corp. A year ago, the average interest rate for the same loan was about 3.5 percent.
The sharp decline in refinancings was among the reasons Charlotte, N.C.-based Bank of America gave for the layoff of more than 280 employees in St. Charles County, Mo., last month. Nationstar Mortgage, which is based in Lewisville, Texas, also said last month that it’s laying off 115 people at the St. Louis office that opened last year, leaving only about 24 workers. Last fall, Wells Fargo laid off 126 employees in its consumer mortgage loan processing division in St. Louis.
“This is the new normal,” said Eve Janis, president of theSt. Louis Mortgage Bankers Association. “You don’t have people knocking down your door to refinance anymore.”
Looking ahead, CitiMortgage’s Fraser said the industry is headed toward refinancings accounting for just 40 percent of mortgage applications.
That’s meant refocusing CitiMortgage on its fundamentals, residential mortgages for home purchases.
“For the first time in a decade, we had to go back to the basics of mortgages again: How do we help people buy homes and stay in them?” she said.
With the drop-off in refinancing business, CitiMortgage spent the past year realigning its offices across thecountry. The company closed offices in Las Vegas and Danville, Ill., and instead chose a few hub cities from which to operate: O’Fallon; Ann Arbor, Mich.; Tucson, Ariz.; Jacksonville, Fla.; and Dallas.
The realignment meant laying off employees - 1,000 sales, fulfillment, underwriting and default jobs were eliminated in September alone, the company said. CitiMortgage employs 16,000 in the U.S.
Responding to the changes in the industry, CitiMortgage has sought to make better connections with Citi’s other banking operations, from the consumer bank to commercial and corporate banking, to boost business.
CitiMortgage’s sales staff has also looked to deepen and expand their partnerships with real estate agents and homebuilders.
“You didn’t need to before, when you just picked up the phone and the demand was there,” Fraser said.
The company is working on developing technology that can make the homebuying process simpler and add services such as storing customers’ documents in a digital vault for safekeeping.
One app it is developing would allow customers to track the process of a mortgage application in real time, and notify them on their smartphones or iPads what forms and documents need to be signed.
For other lenders that relied heavily on revenue from refinancings, there’s also been a similar shift.
Plunging refinancing activity led Pulaski Financial Corp., the parent company of Creve Coeur, Mo.-based Pulaski Bank, to a 20 percent decline in profit in its most recent quarter. The bank saw its mortgage revenue drop 65 percent in the quarter.
Pulaski Financial is not affiliated with the former Pulaski Bank and Trust Co. of Little Rock, which is now a subsidiary of IberiaBank of Lafayette, La.
Gary Douglass, Pulaski Bank’s CEO, said the drop-off in refinancings meant layoffs for about 20 employees last fall. But in other areas, the bank has been growing to increase loan production, including adding new mortgage loan production offices in several Midwest states and hiring additional loan officers.
For the first time, the 92-year-old bank also is looking to acquire a mortgage banking company in its core markets that has annual production volume of between $200 million and $1 billion.
“You can’t shrink your way to success in this business,” Douglass said.
Business, Pages 74 on 03/02/2014