Mortgage Industry Braces for Layoffs
With much of the steam out of the refinancing market, the mortgage financing industry is bracing for widespread layoffs.
Two of the biggest home loan providers in California and the nation -- Washington Mutual Inc. and Countrywide Financial Corp. -- have cut more than 6,500 jobs in recent months. And lenders are preparing to ax thousands more positions in the coming months.
In all, about 65,000 people nationwide employed at firms specializing in mortgage lending probably will lose their jobs over the next 12 months, according to the Mortgage Bankers Assn.
That represents about 15% of the peak employment in late summer, when 435,000 workers were processing home loans as borrowers scurried for fear of missing out on historically low mortgage rates. The association’s estimate doesn’t include jobs at banks that don’t have separate mortgage subsidiaries, and there was no breakdown of the data by states.
But there’s no question that California in particular has a lot riding on this industry. Data from the state’s Employment Development Department show that employment in the two sectors that include mortgage lending and brokerage services jumped 18% from 2000 to 2002, to 110,200. And the sectors have added workers this year, even as overall employment has fallen slightly.
Fueling the growth: booming home sales and refinancing activity.
Statewide, the volume of refinancings totaled $169 billion in the second quarter, up 74% from a year earlier, according to the latest figures from DataQuick Information Systems. Meanwhile, home sales in California are expected to reach a record 574,300 units this year, the California Assn. of Realtors said.
But the Realtors group is projecting that California home sales will fall 4.5% next year, and refinancings already have slid since interest rates started creeping up after hitting a more than 40-year low of 5.21% in June. Last week, the 30-year, fixed-rate mortgage averaged 5.88%, according to giant mortgage lender Freddie Mac.
“Over the past 2 1/2 years, a lot of people were hired to handle all of the refi business,” said Steve Hops, a board member of the California Mortgage Bankers Assn. “Now there’s a lot of overcapacity and the industry can’t support it. So there will be some contraction, and we’re starting to see that now.”
Last week, Seattle-based Washington Mutual, the nation’s second-largest mortgage lender, said more than 2,000 home-loan staff members -- mostly in temporary and contract positions -- would be cut in addition to the 4,500 workers let go since August.
The company said it expected its mortgage volume in the fourth quarter to fall by 50% from the third quarter. Reflecting that downturn, Washington Mutual Chief Executive Kerry Killinger reduced earnings guidance for the year to $4.15 to $4.25 a share, from an earlier forecast of $4.43.
Calabasas-based Countrywide Financial also has been slimming down as refinancings have faded. The company has cut about 2,200 jobs -- in loan originations and closing services -- since mortgage employment peaked in July at more than 22,000 workers, spokesman Rick Simon said.
Wells Fargo & Co., the nation’s largest mortgage lender, declined to comment about its employment plans.
“At any given time, we may be reducing staffing levels in one area but adding in another,” the San Francisco-based bank said in a statement.
According to the Mortgage Bankers Assn., total mortgage originations are expected to hit a record $3.4 trillion this year, up 35% from a year ago. Refinanced mortgages account for about 60% of that total, or more than $2 trillion.
Next year, the association predicts that mortgage loan volume will fall by half to $1.6 trillion, with refinancings making up only 28% of the total.
“We’ve never seen a refi boom as dramatic as the one that’s coming to a close now, never in the history of the planet,” said Charlotte Chamberlain, an analyst with Jeffries & Co. who tracks companies including Countrywide and E-Trade Financial Corp.
As was the case with E-Trade, which in August gave pink slips to 163 employees, most of the downsized workers in the industry thus far have been temporary or contract hires.
Even if specialty mortgage firms eliminate 15% of their staff as projected, employment overall will still be about 370,000 -- 50% more than their payrolls during the 1993-94 refinancing boom, according to the Mortgage Bankers Assn.
“I don’t expect any big shock waves from this,” said G.U. Krueger, chief economist with IHP Capital Partners, an Irvine venture capital fund that works with housing developers.
“It’s going to take away some of the impetus that had been coming from the mortgage sector, which has been a plus in California and the national economy. But it’s coming at a time when other industries are growing again,” Krueger noted. “Housing’s not the only thing now that’s growing.”
