Mortgage Interest Rates Drop but Banks Make Massive Profits


Interest rates may be at historical lows, but banks are making high profits and could drop those rates, according to industry analysts.
According to the N.Y. Times, banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage.
In the article, the mortgage banking industry doesn’t deny the high profits but defends itself by claiming it can’t cut rates because of higher expenses from stiffer regulations passed in the wake of massive bank defaults in 2008.
There’s also the consideration of less competition driving up the interest rates. The article says there has become a concentration of mortgage lending in the hands of a few big banks, primarily Wells Fargo, JPMorgan Chase, Bank of America and U.S. Bancorp.
The U.S. Department of Justice recently came down hard on Wells Fargo Bank, the largest residential home mortgage originator in the United States, for discriminating against Latino and African-American borrowers from 2004 to 2009. Wells Fargo will pay a $125 million settlement with an additional $50 million in down payment assistance to select borrowers.