U.S. home mortgage lenders have spent much of the last two years hiring. Now they might have to spend the coming months laying workers off.
The number of people working as brokers for mortgages and other kinds of loans, a proxy for total home lending employment, has surged more than 50% to around 130,000 since late 2019, according to the U.S. Bureau of Labor Statistics. That’s right around the highest level since early 2006, just before the financial crisis.
But mortgage rates have been rising since August, reaching 3.92% last week, the highest since May 2019. With borrowing more expensive, applications to refinance mortgages have fallen about 45% in the last six months, according to the Mortgage Bankers Association.
While some employees can be shunted into other parts of the mortgage business, such as making loans for home purchases, layoffs in the industry are inevitable, said Jeff DerGurahian, chief capital markets officer at LoanDepot Inc., one of the largest lenders to consumers outside of the banking sector in the U.S.
“With rates moving higher, capacity is going to be adjusted across the entire industry,” DerGurahian said.
Job cuts would come in the context of a labor market that’s been strong as the U.S. recovers from the pandemic, with unemployment at just 4% in January. Rising wages are putting pressure on the Federal Reserve to boost rates as soon as next month to help slow economic growth and tame inflation.
Lowering Standards
Some lenders have already begun to cut back. Mortgage lender Homepoint Capital laid off nearly 10% of its workforce. Better.com, an online mortgage lender, fired around 900 workers in December during an infamous video conference call.
Lenders in general are trying to find more work for their staff by lowering their standards a bit. The credit rating for the average borrower whose loan is bundled into a mortgage bond backed by Fannie Mae or Freddie Mac fell to 733 in January from 750 a year earlier, according to data compiled by Bloomberg. That’s still a prime level for the FICO scale that goes from 300 to 850.
It’s unlikely that lenders will turn to subprime mortgages en masse because post-crisis regulations make that difficult to do profitably, said Erica Adelberg, a Bloomberg Intelligence analyst covering mortgages.
“I don’t see us getting into a credit crisis problem like in 2008, though it may be happening around the edges,” Adelberg said. “It’s more likely that the mortgage lending operation lays off people before they reach that far down the credit spectrum.”