Wells Fargo & Co., the largest U.S. home lender, is turning to former University of Notre Dame football coach Lou Holtz and a captive audience of real-estate agents to attract new business as the pace of U.S. mortgage refinancings is set to drop to the slowest since 2008.
Holtz, 76, who led Notre Dame to a national championship in 1988, will offer inspirational tips today 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 across the U.S.
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 donuts,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication based in Bethesda, Maryland. “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 Corp. 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 today’s speakers, said in a phone interview yesterday. “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, Virginia, in an interview last week on Bloomberg Radio’s “Surveillance” with Tom Keene. “If and when refi activity drops off, is Wells going to continue to do well?”
Wells Fargo fell 0.8 percent to $36.27 as of 4:15 p.m. in New York, trimming its gain this year to 6.1 percent. That compares to a 5.4 percent rise in the 24-company KBW Bank Index.
Mortgages are typically divided into those for refinancing existing loans and for home purchases. While so-called refis are mainly tied to the level of interest rates, purchase mortgages are tied 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 today. While that’s down from 3.63 percent last month, its risen from a record 3.31 percent in November.
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.
Brian Buffini, an independent sales coach, is also scheduled to speak at the session with real estate agents, along with Holtz, who holds the Notre Dame record for most football games coached, is second in wins with 100 and bills himself on Twitter as a “Dr of football & life philosophy.”
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. In all, 28 states will host at least one viewing location, according to the bank’s list of locations.
“Join thousands of your industry colleagues in 80 movie theaters across the country for a dynamic session of high-powered quality time,” reads the website of Wesley Boyd, a Duluth, Georgia-based loan officer for Wells Fargo. “Let’s get informed and inspired together, so we can help more buyers and sellers achieve their goals -- and grow your business.” Boyd is hosting a reception at Uncle Julio’s Fine Mexican Food in Atlanta after the main event.
This isn’t the first time the lender has pinpointed the purchase market for growth. In addition to the annual CineMeeting, the lender holds regional sales rallies intended to motivate salespeople to write more loans.
In one, held about 15 months ago, roughly a dozen sales managers gathered at a hotel south of San Francisco, some dressed as cowboys with six shooters strapped to their hips, to urge an audience of 500 loan officers to reach for 40 percent of the market, according to two attendees who asked that their names not be used because they weren’t authorized to speak publicly.
Wells Fargo isn’t far off that goal, originating about 34.7 percent of the loans for home purchases in 2012 compared to 28.8 percent in 2011, according to Inside Mortgage Finance. JPMorgan ranked second with 8.6 percent compared to 7.3 percent the year before.
The event may show that Wells Fargo thinks marketing to agents can drive more loan demand and is more valuable than reaching out to individual homebuyers, according to Thomas Lawler, a Leesburg, Virginia-based housing consultant. The event has grown from 12,000 real-estate agents and 50 theaters in 2008, according to Boyd’s website.
“You are hoping that doing that will be more cost effective than doing outreach to actual customers,” Lawler said. “They have to sell their competitive advantage.”
Realtors influence 45 percent of homebuyers’ decisions on choosing a bank for home financing, according to a study conducted by Inside Mortgage Finance and Campbell Surveys. The study, which polled almost 2,000 agents over the first two months of this year, shows closing times for loans, costs and an ability to track the mortgage status as reasons why agents steer homebuyers to particular lenders. That may make events like these ineffective in the long run if banks can’t show they are the fastest, cheapest lender with the best services, according to Lawler and Cecala.
“You have to provide value,” Cecala said. “At the end of the day, what determines whether agents send borrowers your way is how competitive your rates are, how fast you close loans and how much you keep the agent in the loop on the status of the loans. To be honest, those are not things that the large lenders do well.”
Wells Fargo has hired staff and built document-processing centers to speed up closing times. In January, the bank said it would add more than 200 bankers and mortgage staff in Georgia. In February, the lender was set to open a new 111,349 square-foot facility in Tempe, Arizona and planned to hire 900 workers. The time to close a loan has been cut to 60 from 90 days, Chief Financial Officer Timothy Sloan said last week on the company’s first-quarter earnings call.
Chief Executive Officer John Stumpf used the same call to parry concerns over a drop in mortgage revenue by citing the bank’s efforts in the homebuyers’ market, without sharing details of any initiatives. The lender also has relationships with homebuilders.
While other large lenders also cater to agents, Wells Fargo’s strategy appears to be the largest, Cecala said. JPMorgan has ended what it called the Chase Preferred Agent program, according to its website. One reason may be the inherent risk that top executives make promises loan officers can’t keep, according to David Lykken, the managing partner of Mortgage Banking Solutions, an Austin, Texas-based consulting firm.
“They have to be smart about what they are saying and that they don’t paint themselves into a corner,” Lykken said in a phone interview. “It could backfire on them and then this becomes a PR nightmare.”
Even so, holding such as event is a good move because it allows the bank to control the message over how it can help agents, Lykken said.
“In many ways I applaud them because it shows strength,” Lykken said. “It’s a smart move.”