Mortgage Layoffs Surge As Rising Rates Crush Lending Activity

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Stocks are in bear market territory, crypto is crashing and bearish fears are rising. Adding to the turmoil of 2022, the housing market is showing troubling signs as rising interest rates result in mortgage activity and job cuts after two years of soaring growth.

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Major brokerages, mortgage lenders and property-tech companies have announced layoffs to varying degrees in the past few months and experts expect the trend to continue. The layoffs are a response to the cooling housing market, where rising mortgage rates and inflation are driving some buyers out of the market.

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Mortgage lenders are hit hard by rising interest rates as applications and refinance applications drop amid rising rates. “We saw an extraordinary wave of demand for two years, when the Fed slashed short-term rates to zero,” says Adam DeSanctis, vice president of communications at the Mortgage Bankers Association. “Lenders tried to ramp up to meet this demand, and they were bringing in new employees.”

That’s changing now that the average rate on a 30-year term mortgage exceeds 6 percent—the first time in more than a decade. Experts are forecasting a 35 to 50 percent drop in mortgage originations this year, from about $4 trillion in 2021 to at least $2 trillion in 2022. Much of the decline is due to a reduction in refinancing, which is expected to drop to $730 billion. According to estimates from the Mortgage Bankers Association, from $2.3 trillion in 2022 to 2021. Meanwhile, according to the group, mortgage refinance applications are down about 80% compared to a year ago.

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“All mortgage providers are still in this process of righting the capacity, which everyone expects to be a smaller market,” Wells Fargo CFO Michael Santomasimo said at a real estate conference on June 14. Wells Fargo laid off at least 114 employees at its mortgage lending team this year after a 33 percent drop in first-quarter revenue to less than $1.5 billion, up from $2.2 billion a year ago.

Wells Fargo is not alone. JPMorgan this Wednesday announced its most recent round of layoffs in its home loan department, affecting more than 1,000 employees. The bank says some of those employees will be let go, while others will be moved to new teams.

Layoffs are often much worse at non-bank lenders, where a less diversified business makes companies more vulnerable to fluctuations in mortgage rates. They are also more likely to serve first-time buyers, who experts say are the first to run out of housing when rates go up. Non-bank lenders also rely heavily on ReFi mortgages, which made up 63 percent of all mortgages last year and are expected to continue to decline this year.

Online mortgage lender has laid off most employees in the industry, totaling more than 3,900 employees during three rounds of layoffs that began in December last year. The first round, which came when rising interest rates were barely on the horizon, caught the attention of the company’s CEO Vishal Garg, who announced the layoffs during a now infamous Zoom call.

“If you are on this call, you are part of the unlucky group that is 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 to lay off in 2022 include New Residential Investment Corp (386 employees), Owners Group (189 employees), PennyMac Financial Services (474 ​​positions), Interfirst Mortgage Company (491 employees), Mr. about 670 positions), and Stearns Lending (348 employees). Dozens of other smaller lenders across the country have also let employees go in recent months.

The country’s largest home lender Rocket Mortgage has avoided layoffs, but has still offered voluntary buyouts to at least 8 percent of the company’s employees.

Real estate brokerage firms are also beginning to feel the heat. Both Redfin and Compass made headlines on June 14 when they announced more than 900 job cuts. “We may be facing years, not months, of low home sales,” Redfin CEO Glenn Kellman said in a written statement after the announcement. The brokerage will lay off 470 employees, or about 8 percent of its workforce. “We don’t have enough work for our agents and support staff.”

Compass announced an imminent layoff of 450 employees, or about 10 percent of its employee base. A company spokesperson said in a statement that the layoffs were “due to clear signs of slowing economic growth”.

It doesn’t end there. Real estate marketplace Zillow announced layoffs of 2,000 employees, or 25 percent 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 percent of its workforce. Rental platform Jumper is one of the most recent to let employees go, after announcing that its headcount would drop by about 15 percent.

The decline in the mortgage industry is evident in the stock market as well. The Vanguard Real Estate ETF, which tracks the prices of the largest real estate investment trusts and other large real estate firms, is down 23 percent for the year. Zillow is down 50 percent year-over-year. Rocket companies are down about 60 percent, and Redfin is down about 80 percent this year.

“If the fall from $97 per share to $8 doesn’t hurt the company, I don’t know what does,” Redfin CEO Kelman said in his statement.

There is a bright spot in the housing space. Home builders are adding jobs in 2022, despite a drop in new residential construction projects. “The home construction industry has been desperate for skilled workers,” says Robert Dietz, chief economist for the National Association of Home Builders. Instead of overhiring during last year’s housing boom, residential construction companies struggled to add headcount. According to the Bureau of Labor Statistics, there are currently 450,000 job opportunities in residential construction and renovation companies.

“There are still a large number of home and apartment and remodeling projects that are in the construction pipeline, and you need workers to complete those projects,” Deetz says.

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