Mortgage lender layoffs loom as demand and volume drop – Orange County Register

By Carmen Arroyo | Bloomberg

US mortgage lenders have spent much of the past two years hiring. Now they may have to spend the next few months laying off workers.

The number of people working as brokers in mortgages and other types of loans, an indicator of total employment in the mortgage industry, has jumped more than 50% to about 130,000 since the end of 2019, according to the Bureau of United States Labor Statistics. This is roughly the highest level since the start of 2006, just before the financial crisis.

But mortgage rates have been rising since August, hitting 3.92% last week, the highest since May 2019. With borrowing more expensive, mortgage refinance applications have fallen by about 45% in the past six months, according to the Mortgage Bankers Association.

While some employees may be directed to other parts of the mortgage business, such as providing loans for home purchases, layoffs in the industry are inevitable, said Jeff DerGurahian, chief markets officer. financiers at LoanDepot Inc., one of the largest consumer lenders outside. of the banking sector in the United States

“With rising rates, capacity is going to be adjusted across the industry,” DerGurahian said.

The job cuts would come amid a labor market that has been strong as the United States recovers from the pandemic, with unemployment at just 4% in January. Rising wages are putting pressure on the Federal Reserve to raise rates as early as next month to slow economic growth and bring inflation under control.

Lowering the standards

Some lenders have already started to cut spending. Mortgage lender Homepoint Capital has laid off nearly 10% of its workforce., an online mortgage lender, laid off around 900 workers in December during an infamous video conference call.

Lenders in general are trying to find more work for their staff by lowering their standards a bit. The credit score of the average borrower whose loan is bundled into a mortgage bond backed by Fannie Mae or Freddie Mac fell to 733 in January from 750 a year earlier, according to data compiled by Bloomberg. This is still an essential level for the FICO scale which ranges from 300 to 850.

Lenders are unlikely to massively shift to subprime mortgages as post-crisis regulations make it difficult to do this profitably, said Erica Adelberg, a Bloomberg Intelligence analyst covering mortgages.

“I don’t see us going into a credit crunch problem like in 2008, although it could come around the edges,” Adelberg said. “The mortgage operation is more likely to lay people off before they reach that level of credit.”

a reversal

The likely decline in mortgage jobs comes after lenders spent much of 2020 and 2021 recruiting staff. As the Federal Reserve sought to ensure the economy did not implode during the pandemic, it cut interest rates to zero and 30-year mortgage rates fell to 2.65% at the start of 2021, from more than 3.5% at the start of 2020.

A wave of lending followed and, with lower financing costs, home sales surged, contributing to overall US economic growth. About 0.45 percentage points of the 5.7% growth in gross domestic product last year was due to the housing sector, said Cristian deRitis, economist at Moody’s Analytics.

Now the volume drops. The Mortgage Bankers Association expects volume this year to decline to $2.6 trillion, from $4 trillion in 2021.

One area mortgage employees can now focus more on is home buying mortgages, which can take longer to process than refinances. For a purchase, the underwriter must evaluate new appraisal documents and review down payments and other moving costs.

“While we expect refinancing volume to decline as interest rates rise, purchase volumes remain high,” noted deRitis of Moody’s Analytics. “Purchasing is more labor intensive, which could offset some reduction in staff.”

Mortgage wholesalers, lenders who work with brokers and third parties and tend to focus on buying loans, could be in particularly good shape now, said Alex Elezaj, chief strategy officer of United Wholesale Mortgage, one of the largest wholesalers in the United States. United Wholesale Mortgage does not expect any layoffs at its business, he says.

“Between now and the middle of the year, there will be continued pressure on many mortgage companies as rates continue to rise,” Elezaj said.

Sales down?

And even if the volume of purchases is currently strong, it could decrease in the coming months: in addition to mortgage rates which have increased in recent months, housing prices have jumped in the last two years, making houses less affordable.

Another area lenders could focus more on before laying off employees is borrowers who cannot document their income and therefore do not qualify for mortgages backed by government-sponsored companies like Fannie Mae. Home loans for these borrowers, especially those known as “non-qualified mortgages”, may become a bit more popular.

“With the decline in refi volume, lenders will have to work on something else. We think they could focus on non-QMs, which take longer to underwrite,” said Sujoy Saha, RMBS analyst for the structured finance team at S&P Global Ratings.

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