With Rates Low, Banks Increase Mortgage Profit

Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans.

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.

"The banks may say, 'We are offering you record low interest rates, so you should be as happy as a clam,' " said Guy D. Cecala, publisher of Inside Mortgage Finance, a home loan publication. "But borrowers could be getting them cheaper."

Mortgage bankers acknowledge that they are realizing big gains right now from home loans. But they say they cannot afford to cut rates even more because of the higher expenses resulting from stiffer regulations.

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