After two years of an uncanny housing boom, forecasts are pointing toward a more stabilized housing market for 2022 as mortgage rates continue to climb along with home prices.
While the return to seasonality hasn’t worried real estate professionals who still expect robust demand to drive activity, mortgage companies are likely singing a different tune as experts say a wave of layoffs that began in late 2021 is likely to continue or even worsen this year.
“You’re going to see a number of mortgage companies cut operation staff…they will not have an option,” says Tim Wilson, CEO of Prosperity Home Mortgage.
That’s largely due to the shrinking refinancing businesses coming down from a sugar high of activity in 2020 and 2021.
The Mortgage Bankers Association (MBA) forecast that refinance originations will come in at $870 billion in 2022, down from $2.32 trillion and $2.63 trillion in 2021 and 2020, respectively.
Despite an initial lull in market activity in the first two months of 2020, mortgage origination soared during the pandemic, defying expectations.
At the time, Wilson says the industry was slated for $3 trillion in production, but the surge in homeowners and new buyers looking to capitalize on historically low mortgage rates sent companies on a hiring spree to keep up with demand.
It was similar in 2021, nearly matching the loan volume of 2020.
Now, the industry and its stakeholders are gearing up for a market shift that has already started pressuring mortgage companies to reevaluate their staffing needs and expenditures.
“The industry has just come off two years of record levels for the refinancing business,” says Josh Harley, CEO of Fathom Realty, which acquired mortgage company Encompass Lending in 2021.
“With that tremendous growth came massive hiring to keep up, but what goes up must come down,” adds Harley.
Several lending institutions have already captured headlines in recent months after announcing a significant cut to their employee base. The most notable was Better.com, which came under fire after its CEO laid off 900 workers over a zoom call.
Interfirst Mortgage and Freedom Mortgage followed soon after.
Interfirst laid off 77 employees in Charlotte, including loan originators, national account managers, retail sales managers and transaction coordinators, among others.
Freedom Mortgage cut 171 jobs in California and shut down its mortgage servicing office in the state.
Paul Hindman, managing director at Grid Origination Services, says the industry can expect much more to come as mortgage rates continue to climb in 2022.
“I’m predicting that if rates go to 4% in the first quarter that there will be thousands more layoffs that will occur across the industry because it’s just simply the lack of mortgage business versus being overstaffed,” he says.
A lack of flexibility in product offerings has also been a detriment for the companies, Hindman adds, suggesting that companies that relied heavily on refi activity without diversifying their business will be the first to cut staff for the lack of production.
Margin compression is another factor leading to layoffs, according to Harley.
“In the refinance boom, companies were taking advantage of the larger volume increase to maximize their margins, but now as business slows, mortgage companies will have to offer better rates which equate to smaller margins.”
Despite the shifting market, Harley says his recent growth in the past year has positioned Encompass Lending for further growth even while other companies are slated to reduce staff.
That’s also the case for William Raveis Mortgage, according to company president Ryan Raveis, who says the company’s investment in tech has allowed them to stay productive even as the market shifts.
“Most companies didn’t have the technology to flex to meet the new demand, so they increased headcount,” Raveis says. “Now, as interest rates are rising, they need to reverse the trend.
“We are prepared because we’ve constantly been investing in tech,” he continues. “We won’t be doing any layoffs and are, in fact, hiring to meet the opportunity we see with the change in consumer sentiment—that they want a seamless real estate and mortgage transaction.”
While the opportunity for refi’s is drying up, MBA forecasts suggest that purchase originations are poised to eclipse 2021’s record high and reach $1.74 trillion under strong housing demand and rising home prices and sales.
Harley and Raveis aren’t alone in that effort to increase the workforce in their mortgage companies, according to recent data from the Bureau of Labor Statistics (BLS).
Despite headlines of layoffs in December, a recent BLS jobs report found that employee numbers in non-depositories, which reflects mortgage banker and broker employment in December 2021, have ticked up and are still climbing.
For tech-focused providers, Hindman says they can further expand their business model to capture business that more traditional companies do.
“There are companies out there that are uniquely positioned to increase their market share or continue increasing their market share because they understand that they can’t just be a one-trick pony,” Hindman says.
He used Rocket Companies plans to acquire Truebill as an example.
In a December statement announcing the $1.275 billion deal, Rocket indicated that the addition of Truebill’s financial wellness services would help the company have both a new organic growth opportunity and a channel to nurture clients.
“Rocket is basically saying to the market through all the tech that they’ve purchased or built themselves, that they are developing all kinds of relationships to funnel all sorts of consumer business to their family of companies,” Hindmans says.
That’s also a similar approach that Redfin has taken with its recent announcement that the tech company agreed to acquire Bay Equity Home Loans to expand it’s financing capabilities in the U.S.
“For years, Redfin has talked about becoming a one-stop-shop for brokerage, mortgage, iBuying and title services,” said Redfin CEO Glen Kellman in a January statement announcing the deal. “Just having one company offer all these services is more efficient, letting us keep customers’ lending fees low.”
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news ideas to jgrice@rismedia.com.
