Inside Wall Street's mad dash to keep up with a surge in mortgage demand that could be a rare bright spot after an emergency Fed rate cut

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Following the latest Fed rate cut, JPMorgan Chase's call centers and digital channels were flooded with mortgage-related inquiries, leading the bank this week to dial back its marketing spend.

• Banks are scrambling to keep up with surging mortgage demand. Amid falling interest rates, mortgage volumes have been soaring since the second half of 2019.
• That went into overdrive this week after the Federal Reserve announced a surprise, emergency cut to its benchmark interest rate in the face of the growing global coronavirus outbreak.
• Following the rate cut, JPMorgan Chase's call centers and digital channels were flooded with mortgage-related inquiries, leading the bank this week to dial back its marketing spend.
• In contrast, Bank of America isn't shifting home-equity staff - because it extensively trained hundreds of them on mortgage underwriting in 2019 to give the bank more flexibility.
• Experts say rates heightened demand will continue as rates fall further, and that could mean long wait times to close on homes and refinancings.
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Mortgage rates were already hitting record lows - and then the Federal Reserve unleashed an emergency cut to its benchmark interest rate.

Now lenders, which have already been scrambling to keep up with heightened demand for home loans and refinancings spurred by falling rates, are bracing to absorb another crush of applications from prospective homebuyers.

With the spread of coronavirus has roiling global markets and upending trade flows, the Fed leapt into action on Tuesday with a surprise 50-basis-point rate cut.

Before that, the typical 30-year fixed mortgage had already dropped to 3.13% on Monday, the lowest rate since 1970, according to Redfin chief economist Daryl Fairweather.

While mortgage rates don't move in lock-step with the Fed's rates, since then brokers have been reporting 30-year fixed rates below 3%, and experts expect rates will continue falling following the latest Fed action.

"This drop in mortgage rates will be a boon to home sales as more buyers are motivated to complete deals and lock their mortgage rate," Fairweather said.

Following the rate cut, JPMorgan Chase's call centers and digital channels were flooded with mortgage-related inquiries, leading the bank this week to dial back its marketing spend.

"We've paused email marketing campaigns on refinancing this week due to the thousands of customers who are already aware of the low rates and applying for them on Chase.com," Amy Bonitatibus, chief marketing officer for Chase Home Lending, told Business Insider in an email.

That move followed a decision last week by JPMorgan to shift half of its home-equity staff into its mortgage business to keep up with demand, according to a Bloomberg report.

"We were seeing already a pretty meaningful increase, and when the rate cut was announced this week that volume grew exponentially," Bonitatibus said.

In contrast, Bank of America isn't shifting home-equity staff - because it extensively trained hundreds of them on mortgage underwriting in 2019 to give the bank more flexibility.

At the end of first quarter of 2019, the bank began training more than 200 hundred home-equity employees on mortgage underwriting, according to John Schleck, senior vice president of Centralized and On Line Sales. The training, which happened over the course of several months, was as comprehensive as for new hires in mortgage underwriting.

"We made a conscious decision to do a lot of cross-training of home equity and first mortgage fulfillment," Schleck, who oversees call center and digital sales for mortgages and home-quity loans, told Business Insider. "We did that so that we could flex those underwriters back and forth as demand shifted, and do it very quickly."

Mindful that many customers recently refinanced or took out a new mortgage, part of the calculus behind the cross-training initiative was that the bank wanted flexibility to handle a bump in home-equity flow, too.

"A lot of our customers refinanced into very good fixed rates last year, and if they want to do home improvements or put in solar panels, a home equity loan may be a better option and less expensive," Schleck said.

Mortgages continue surging after monster 2019

After all but evaporating in 2018, consumer appetite for mortgages, especially refinancings, surged in 2019 after the Fed cut its benchmark rate by 25 basis points three times in the second half of the year.

That led to a monster year for home lenders. Bank of America, for instance, had a resurgent year in mortgages, finishing as the 6th-largest residential originator in 2019 and increasing volumes 76% to $72.5 billion.

Industry-wide residential mortgage originations increased 46% to $2.4 trillion.

But intense demand also at times proved more than lenders were prepared to handle, and staffing-related bottlenecks led longer closing times on loans.

Schleck said at his firm closing times did increase in the fall as the company worked through the backlog following the rate cuts, but that by November they started to decrease again.

In addition to the cross-training initiative, he said the bank also last year increased staffing for salespeople and in its financial centers, and it also has tapped existing vendor relationships to quickly add back-office underwriting and fulfillment employees.

"We felt really well positioned going into 2020," Schleck said.

The big banks have also invested heavily in their digital lending platforms, which are increasingly handling consumer loan volumes and stripping out time and costs from the process.

With the exception of Bank of America, most big-bank lenders have outsourced that task to financial technology startups like Better.com, Blend, and Roostify - firms that have raised hundreds of millions and grown rapidly over the past year amid the industry's turnaround.

Better.com, which offers digital mortgages to customers directly in addition to handling online mortgage platforms for companies like Ally Bank, closed a $160 million funding round in August and now has more than 1,700 employees across six offices, up from 400 employees at the beginning of 2019.

"If rates continue to stay this low, we project to hire more folks to accommodate the demand," said Arthur Matuszewski, vice president of talent at Better.com

But digital upgrades have primarily streamlined only the early stages of the notoriously complicated and paper-heavy mortgage process. Appraisals, home inspections, and closings still involve real human interactions and labor - and there are only so many appraisers and inspectors in the industry.

Given that reality, even accounting for measures banks are taking to ramp up capacity, the surging demand will likely overwhelm parts of the process and "all lenders' turn times will probably lengthen," Schleck said.

"Like everyone, we're going to feel that. And it's most likely going to have an impact on turn time at some point," he said.

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