Fed move boosts big lenders’ margins

Mortgage rates postonly slightly decline


In this photograph taken July 26, 2010, new townhouses for sale are shown in Beaverton, Ore. Mortgage rates dropped to the lowest level on record for the fifth time in six weeks, making homebuying and refinancing the most attractive in decades for those who can get loans. (AP Photo/Don Ryan)


NEW YORK — The Federal Reserve's latest mortgage bond purchases so far are helping profit margins at lenders including Wells Fargo and JPMorgan Chase more than home buyers and property owners looking to refinance.

Since the Fed's Sept. 13 announcement that it would buy $40 billion more securities per month, the rates offered for new 30-year loans have fallen by just 0.11 percentage point, compared with a drop of more than 0.6 percentage point for yields on the bonds into which the loans are packaged, according to data compiled by Bloomberg and 

The gap between the two, which typically signals increasing lender revenue when it widens, has reached a record of more than 1.6 percentage points.

Fed Chairman Ben Bernanke's stated goal of helping boost the housing market is being undercut by lenders’ inability to keep up with consumer demand, even as investors drive up bond prices. Banks have been slow to lower rates after being overwhelmed this year by applications to refinance mortgages.

“Think about it this way: If you had a restaurant with 100 people out the door waiting in line, would lowering prices be the first thing on your mind?” said Scott Simon, the mortgage head at Newport Beach, Calif.-based Pacific Investment Management Co., manager of the world's largest bond fund.

Since the Fed's announcement, margins on sales of mortgages have widened by about 50 percent from the average level this year, which already was elevated, said Kevin Barker, an analyst at Washington-based Compass Point Research & Trading.

“It's very good to be a mortgage originator right now,” he said.

The Fed is targeting the $5.2 trillion market for mortgage bonds guaranteed by government-backed Fannie Mae, Freddie Mac, and Ginnie Mae, which helps determine the rates that lenders can offer. Lenders bundle about 90 percent of new loans into the securities to sell to investors, giving them funds to make more.

The added time it's taking to close on loans is signaling the industry's limited capacity for handling more.

Mortgage refinancings completed in August took an average of 51 days, up from 37 days a year earlier, according to Ellie Mae, a mortgage-technology firm.