Mortgage layoffs rise as rising rates crush lending activity

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Stocks are in bearish territory, crypto is plummeting, and recession fears keep growing. Adding to the turmoil of 2022, the housing market is showing worrying signs as rising interest rates lead to reduced mortgage activity and job cuts after two years of soaring growth.

Major brokerages, mortgage lenders and real estate technology companies have all announced layoffs of varying degrees in recent months and experts expect the trend to continue. The layoffs are a response to a cooling housing market, where rising mortgage rates and inflation are pushing some buyers out of the market.

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Mortgage lenders are hit hard by rising interest rates, as applications and requests for refinancing tend to drop when rates rise. “We saw an exceptional wave of demand for two years when the Fed took short-term rates to zero,” said Adam DeSanctis, vice president of communications for the Mortgage Bankers Associations. “Lenders tried to ramp up to meet this demand, and they were hiring new staff.”

That’s changing now as the average rate on a 30-year fixed mortgage tops 6%, the first time in more than a decade. Experts predict a 35-50% drop in mortgage lending this year, from nearly $4 trillion in 2021 to $2 trillion in 2022. Most of this decline is due to a decrease in refinancing, which is expected to drop to $730 billion. in 2022 compared to $2.3 trillion in 2021, according to Mortgage Bankers Association estimates. Meanwhile, mortgage refinance applications are down nearly 80% from a year ago, according to the group.

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“All mortgage providers are still in this process of resizing capacity for what everyone expects will be a smaller market,” Wells Fargo chief financial officer Michael Santomassimo said during a briefing. real estate conference on June 14. Wells Fargo laid off at least 114 employees in its mortgage team this year after first-quarter revenue fell 33% to less than $1.5 billion from more than $2.2 billion a year ago. year.

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Wells Fargo is not alone. JPMorgan on Wednesday announced its latest round of layoffs in its home loan department, affecting more than 1,000 employees. The bank says some of those employees will be laid off, while others will be transferred to new teams.

Layoffs are often much worse at nonbank lenders, where less diversified business makes companies more susceptible to swings in mortgage rates. They are also more likely to serve first-time buyers, who experts say are the first to be evicted from housing when rates rise. Non-bank lenders are also relying more on refi mortgages, which accounted for 63% of all mortgages last year and are expected to continue falling this year.

Online mortgage lender Better.com has laid off the largest number of employees in the industry, totaling more than 3,900 workers in three rounds of layoffs starting in December last year. The first round, which took place as rising interest rates were barely on the horizon, drew attention to company CEO Vishal Garg, who announced the dismissal during a call Zoom now infamous.

“If you’re on this call, you’re part of the unlucky group that’s being laid off,” Garg said on the call, which included 900 employees. “Your employment here is terminated with immediate effect.”

According to HousingWire, other mortgage lenders making layoffs in 2022 include New Residential Investment Corp. (386 positions), Owning Group (189 employees), Pennymac Financial Services (474 ​​positions), Interfirst Mortgage Co. (491 workers), Mr. Cooper (about 670 positions) and Stearns Lending (348 employees). Dozens of other small lenders across the country have also laid off employees in recent months.

Rocket Mortgage, the nation’s largest home lender, avoided layoffs but still offered a voluntary buyout to at least 8% of the company’s employees.

Real estate brokerages are also starting to feel the heat. Redfin and Compass both grabbed headlines when they announced more than 900 job cuts on June 14. brokerage would lay off 470 employees, or about 8% of its workforce. “We don’t have enough work for our agents and support staff.”

Compass has announced the imminent layoff of 450 employees, or about 10% of its workforce. A company spokesperson said in a statement that the layoffs were “due to clear signals of slowing economic growth.”

It doesn’t stop there. Zillow, the real estate market, announced layoffs of 2,000 employees, or 25% of the company, at the end of 2021. The layoffs were largely the result of Zillow closing its home buying program. San Francisco-based brokerage Side announced on June 1 that it would lay off 10% of its workforce. Rental platform Zumper is one of the most recent to lay off employees, after announcing it would lose around 15% of its workforce.

The downward movement in the mortgage sector is also evident in the stock market. The Vanguard Real Estate ETF, which tracks the prices of the largest real estate investment trusts and other major real estate companies, is down 23% for the year. Zillow is down 50% since the start of the year. Rocket Companies is down almost 60% and Redfin is down almost 80% this year.

“If going from $97 per share to $8 doesn’t strain a business, I don’t know what does,” Redfin CEO Kelman said in the statement.

There is a light spot in the housing space. Homebuilders are adding jobs in 2022 despite a drop in new residential construction projects. “The home building industry is in desperate need of skilled workers,” says Robert Dietz, chief economist at the National Association of Home Builders. Rather than overhiring during last year’s housing boom, homebuilders struggled to increase their workforces. There are currently 450,000 job openings in home construction and renovation companies, according to the Bureau of Labor Statistics.

“There are still a lot of houses and apartments and renovation projects being built, and you need workers to complete those projects,” says Deitz.

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