- change ups
Mortgage Industry Job Losses Add Up
GRAND RAPIDS — Mortgage lenders have been forced to slash thousands of financial services jobs this year in order to adapt to changing mortgage conditions. Data compiled by consulting firm Challenger, Gray & Christmas reveals that mortgage lending institutions cut more than 40,000 positions between January and August. Some believe the tally is much higher.
California-based Countrywide Financial Corp., the nation’s largest home loan company, for instance, laid off more than 100 sub-prime market employees toward the end of the first quarter, cut about 500 positions from its mortgage production divisions in August, and shortly thereafter disclosed it was preparing to cut another 900 more jobs nationwide, mostly in mortgage production. Earlier this month, the company said it will lay off as many as 12,000.
Also this month, Lehman Brothers Holdings announced it was laying off 850 people, closing its South Korean mortgage business and consolidating its U.S., Japanese and European businesses. That announcement came on the heels of Lehman Brothers’ closing of its BNC Mortgage subsidiary. Around the same time, National City Corp. said it planned to cut back its mortgage business and let go of 1,300 employees. A month earlier Capital One Financial Corp. announced it was closing its mortgage branch and eliminating 1,900 jobs. Then H&R Block announced it would cut 615 positions in its faltering mortgage subsidiary, Option One Mortgage Corp.
The list goes on and on, and the shearing continues. According to Mortgage Graveyard, a free journal from MortgageDaily.com, an unprecedented number of companies have failed this year: At last count, 95 mortgage companies had failed and 34 had been acquired.
The mortgage market has always been and always will be a cyclical part of the economy: the less deal flow, the less volume, the fewer people needed to man the station, said Mitch Stapley, chief fixed income officer for Fifth Third Asset Management. But normally, the cycles are tied to interest rates, he said. If interest rates go up, mortgages become more expensive, fewer people can afford them, and mortgage brokers start being laid off.
“With this one, it’s really the fact that rates are up a whole bunch — not due to overall interest rates being up but to subprime and Alt-A rates being much higher because of market conditions,” Stapley said.
The mortgage lenders that remain have tightened their credit standards, which has reduced the volume of loans that get approved and, subsequently, reduced the number of people needed to handle the loans, said Chase Bank Spokesman Tom Kelly. It’s perfectly normal for the number of jobs in the mortgage industry to ebb and flow according to the volume of loan activity, he added.
“The big change that’s happening this time is that a number of smaller companies are going away and will never be heard from again,” Kelly pointed out. “Some of the larger companies are perhaps reducing head counts.”
During the boom in the housing market, consumers were not only taking out mortgages for first-time home buys, but existing homeowners were refinancing — often several times. As interest rates have crept up over the last couple of years, it doesn’t make sense for people to refinance, so all that business is gone, too, Kelly noted. Meanwhile, there are more homes on the market taking longer to sell and there are fewer sales, in part because lenders have tightened standards and in part because consumers are becoming more cautious, he added.
It’s not so much that there aren’t bodies out there to do the loans for people; the loans are gone, and the bodies have gone with them, observed Richard DeKaser, National City Corp.’s chief economist. He said the job losses are linked primarily to subprime mortgages within the mortgage market, but that it’s not exclusively a subprime phenomenon. Mortgage lenders broadly have been paring back operations for two reasons. First, mortgage volumes are way down. The country experienced a big housing market adjustment and some of that is not coming back anytime soon, so a lot of mortgage lenders have simply downsized, DeKaser explained.
“Additionally, the non-conforming mortgages in the subprime market segment, such as Alt-A, are also going through an adjustment that’s not simply related to contracting market conditions but to those particular products being tremendously out of favor with mortgage investors,” he said.
Although two years ago investors were throwing money at the non-conforming segment of the subprime market, the products proved to have higher risks than anticipated. The pendulum swung the other way, and the fear is so intense now that nobody wants to go near anything that’s closely related to the subprime market, DeKaser added.
Of note is that during the five years that the housing market was flourishing, a lot of new people joined the mortgage business, particularly in the brokerage segment where many of the non-conventional products originated, DeKaser said. “Not to trivialize the significance of job loss, but many people who had other occupations got into the mortgage business once it took off,” he said. “It’s not like you have people who were life-long mortgage brokers whose skills are obsolete now. Many of them came from other walks of life and will return to those walks of life.”
How is the average consumer affected by the downsizing in the mortgage industry? Usually, there is less availability of particular kinds of mortgage products for consumers, but because the mortgage industry is still very fragmented, there remain plenty of choices, according to Kelly. He noted that in the last three or four months, there has been what some people call a “flight to quality.”
“Consumers and mortgage brokers who help consumers find loans are now more often going to banks and long-established mortgage companies because the guy who put out a shingle three years ago isn’t there anymore,” he remarked. “Mortgage brokers are very motivated to close on loans, and the way they do that is by going to a company that’s going to be here next week and next year.”
Most of the large financial institutions are still writing loans, so it’s not like mortgage products aren’t available, Stapley added. But some of the “nonsense” that was out there — such as the no-document mortgages that shouldn’t have been written in the first place — won’t be as readily available, if at all, Stapley said.
“We’re probably going to go a little retro here and move back to the days where you’ll have the ability to access the credit markets and the ability to get a mortgage, but you’re going to have to show us what you’re earning and you’re going to have to have a down payment,” he predicted.