The boom of the mortgage industry has come and gone, and in its wake is a list of companies that have had to shed hundreds—if not thousands—of workers amid the disappearing refinancing market.
While the result was expected based on industry forecasts, the problem has extended beyond the startups and online companies that kickstarted the trend and is affecting bigger players. That has been evident in recent downsizing announcements coming out from large-scale lenders like Wells Fargo, Rocket Mortgage and Mr. Cooper in recent weeks.
“While the mortgage industry experienced record-high origination volumes in recent years and resources were scaled up to meet consumer demand, the industry now faces higher interest rates leading to lower origination volume,” read a statement from Mr. Cooper, which fired 250 people in the first quarter of 2022.
In Rocket’s case, the company opted to cut staff through a voluntary buyout program to help the lending giant cut 8% of its workforce, primarily in Rocket Mortgage’s operations team and various groups within Amrock.
According to Mike Malloy, chief administrative officer at Rocket Central, which handles human resources services for all of Rocket Companies, the company decided because some employees indicated they wanted to move into another role or out of the industry entirely.
“One of our responsibilities as a company is to provide our team members a fulfilling career, and we have been able to do that for tens of thousands in the last 36 years,” Malloy said. “Over that time, we have been through several market cycles—similar to those the industry is experiencing today.”
He also stated that the company’s “career growth options” at Rocket Mortgage and Amrock were limited as the housing market shifted.
That was the case for Wells Fargo, which also announced that it was laying off workers in its home lending division in April.
In an emailed statement to RISMedia, a Wells Fargo spokesperson said, “The employees affected by these changes have each been an essential part of our success. We are carrying out displacements in a transparent and thoughtful manner and providing assistance, such as severance and career counseling.”
Signs of the storm
To some industry pundits, the recent labor cuts by larger companies appear to be a sign of a longer-term trend potentially taking hold in the market.
“By making these kinds of cuts, they are saying to the market and their shareholders that these higher rates are here to stay, and they will right size the organization to adjust to that reality,” says Paul Hindman, managing director at Grid Origination Services.
In a previous interview with RISMedia, Hindman predicted that a mounting trend of layoffs in the mortgage industry could go from hundreds to thousands of firings industry wide as originations activity shifts under rising rates.
“I always felt that 4% would be those folks you had at the lower scale of the productivity and quality and let go without feeling it,” Hindman says. “Now folks have begun to let go of core resources—those highly experienced, tenured resources needed for your core business to grow.”
Part of the problem, according to Hindman, is recent efforts by the Federal Reserve to reel in inflation. It recently announced that it was accelerating the central bank’s interest rate hikes with a 50-basis point increase—the largest single jump in over two decades.
“The Fed decided in a three-month period to go from 2% rates to 6% rates,” he says. “The game was over for so many people when that happened.”
“The market right now is the most challenging time, not because we are unfamiliar with the cycle, but because it’s too abrupt, volatile and uncertain,” Hindman says. “It’s too much, too quick to absorb.”
While he agrees that interest rate hikes implemented are likely exacerbating the staffing losses industrywide, Sean Varin, president of Encompass Lending, tells RISMedia that he doesn’t expect the sky to fall in the mortgage industry.
“Many people lived off their credit cards during the last several years surviving the pandemic, so they will need a fresh start financially and focus on monthly cash flow savings, perfect for cash-out and debt consolidation refinances,” Varin says. “The timing will be perfect for those types of refinances as most have seen significant value increases in their homes and have strong equity to tap into.
“I believe the rates will continue to climb over the next 12-18 months, level out with small increases over another 12-18 months. Then we believe rates will drop and create another potential refinance boom,” Varin continues. “Not as significant as what we had in 2020 and 2021 but will be a great opportunity for rate reduction refinances.”
Uptick of consolidation
While more prominent companies are also cutting some of their existing employees, Hindman expects to see a rise in acquisitions and consolidation within the lending industry as brands continue pursuing market share.
“Organic growth is really difficult because you own the mistakes you make to the degree that if you hire someone who isn’t a fit for your organization, it’s on you,” Hindman says. “But when you acquire, you can hide your sins and the company you’re acquiring because they are for sale for a reason.”
“All fire sales create a cherry-picking exercise,” he adds.
Hindman cited a recent announcement by Connecticut-based mortgage servicer and lender Planet Home Lending as an example. The company announced in late April that it agreed to acquire assets from mortgage originator and servicer Homepoint’s delegated correspondent channel.
Mortgage broker Shant Banosian of Guaranteed Rate echoed similar sentiments, adding that the industry could start to see increased consolidation by the second half of the year and in 2023.
“Anytime there are headwinds in a business like this, you’ll see consolidation in the market,” Banosian says. “You’re already starting to hear about companies being up for sale, so I think that you will see consolidation in our business this year with companies merging, getting acquired and even some companies disappearing.”
The downsizing of labor across the lending industry hasn’t let up for months as the refinancing origination business has all but dried up since its massive boom of business in 2020 and 2021.
The Mortgage Bankers Association (MBA) forecast that refinance originations will come in at $841 billion in 2022, down from $2.32 trillion in 2021. The number is expected to drop to $676 billion in 2023 before ticking up in 2024.
According to MBA data, the forecasts for purchase originations show a much more optimistic picture, with volume slated to climb consistently over the next three years.
The impact was mainly felt by companies that relied heavily on refi’s as many saw a significant amount of their productions disappear over the last two years. Since the refi activity began shrinking, the scales have tipped predominantly to purchase originations.
However, Banosian says the current supply shortage in homes for sale has also complicated the purchase of production prospects for lenders.
Unlike Hindman, Banosian says that he isn’t convinced that the recent labor cuts by companies like Rocket and Wells Fargo indicate a long-term trend.
“There are people who are predicting that rates will come down just as fast when inflation is under control and if we head into a recession,” he says. “It seems far-fetched now, but with all these people taking rates between 4% and 5%, if rates come down next year, we could be in another big refinance boom, and we’ll see people staffing again.”
For the companies that weather the storm, Banosian says they will be able to reap significant benefits if they focus on execution, communication and running their businesses profitably.
“I think this year, 2022, in the mortgage business is probably one of the most important years for everyone, and it’s going to create massive opportunities for growth in the future and massive opportunity for increased market share,” he says.