Interest Rates Force Cutbacks at Plaza Home : Mortgage loans: Sharp drop in refinancings have cost jobs of 28% of nationwide work force. More layoffs are expected.
Plaza Home Mortgage Corp., a mortgage banker that had posted big profits in recent years, said Thursday that it has cut 28% of its nationwide work force and will lose up to $10.4 million for the second quarter as higher interest rates began strangling its loan business.
The holding company for Plaza Home Mortgage Bank said that since interest rates started rising early this year, it has laid off 335 of its 1,200 employees systemwide. It has 40 loan offices in 13 states and a full-service branch at its Santa Ana headquarters.
“More layoffs are anticipated, but we don’t know how many because we don’t know what the market is going to do now,” said spokeswoman Pam Albo. “It’s feasible that some offices could be closed but only if they become unproductive.”
The company said that unaudited financial results, to be released in the next few weeks, will show that the company lost $9.2 million to $10.4 million for the second quarter, or 80 cents to 90 cents a share. In last year’s second quarter, Plaza earned $3.3 million, or 29 cents a share.
Cutbacks have been routine among mortgage banks this year as rising interest rates have ended the long growth in home loan refinancings. A year ago, Plaza’s refinancings constituted 74% of its loans, but this year refinancings dropped to 36% of its volume.
Savings and loans that hold onto loans they make are doing well, but mortgage bankers, who rely on high volume and sell all their loans, have been hard hit. Plaza’s mortgage bank unit is an S&L; that acts as a mortgage banker.
Plaza’s staff cuts over the last six months were across the board, though a bit more were among loan officers. The layoffs include 108 employees at its headquarters and at loan offices in Anaheim and Laguna Beach. Headquarters alone lost 72 workers.
John T. French, Plaza’s chairman, said in a press release that the company was not able to reduce its staff and consolidate operations fast enough when the mortgage market turned. Besides feeling the pinch from lower volume, the thrift was bruised by intense competition, lower-than-expected interest income and losses from securities investments.
“Consistent with our goal of long-term growth, we made a business decision not to sell large blocks of valuable servicing rights to offset the quarter’s operational loss,” French said. The first phase of Plaza’s restructuring was completed two weeks ago and, he said, “is expected to produce a marked improvement in Plaza’s operating results in the third quarter and later this year.”
The company’s stock closed Thursday at $5.5625 a share, down to 81.25 cents a share on the Nasdaq market system. Albo said shares at all publicly traded mortgage banking firms have been falling since interest rates starting rising.
Plaza’s thrift is the nation’s 22nd-largest provider of home financing and has been among the leaders in lending in poor and in minority areas. It created a subsidiary, Option One, to provide loans to credit-worthy borrowers who didn’t meet standard credit criteria.
The company earned $6.6 million last year and a record $14.5 million the previous year. It funded a record $8.3 billion in loans last year and $5.6 billion in 1992.
