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How Are Banks Profiting on Mortgage Refinancing?

toy houses; woodleywonderworks via Flickr

Question: Banks like Wells Fargo and JP Morgan recently announced better-than-expected profits. The given reason is that they are making money on the refinancing of mortgages. Doesn’t mortgage refinancing imply lower rates of interest and repayment? How can they be making MORE money on these loans?

Paul Solman: They don’t hold onto the mortgages, remember. They package and sell them. They make much of their money on the fees that derive from the packaging and selling. If there’s a flood of such business, they make more than if there’s a trickle.

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