Nonbank mortgage employment dropped a notch lower in the latest Bureau of Labor Statistics numbers as a weaker-than-expected addition of 29,000 to total U.S. jobs raised new questions about rate projections.
The monthly benchmark number for lenders and brokers combined, which lags one month behind the September's addition of 49,000 to total jobs, shows industry payrolls inched further down to an estimated 259,900 in August from an upwardly revised 261,500
Rates that rose markedly higher in the past two months suggest lenders could have staged and will add more layoffs. But historical numbers also show they already have made hiring adjustments that look conservative compared to adjustments they had to make
When the weekly average Freddie Mac rate last rose above 7% in January of last year, the nonbank payroll benchmark stood at 262,300. That means hiring was a little below that level even in August, when rates still had a high 6 handle.
Industry payrolls also are lower than when rates were last above 7.2%, as they are now, and lenders now have the option to experiment with new forms or artificial intelligence aimed at helping them manage staffing in circumstances where they're comfortable managing the risks.
The housing finance outlook and hiring
Experts depict the future of the mortgage industry as one in which rates could fluctuate somewhat from time-to-time with some slight weakening in the job outlook similar to that seen in September. But they also forecast that persistence in inflation could sustain a higher rate trend.
"What we expect in the economy: Some rate rises, mild upticks in unemployment, and a little bit lower GDP," said Jeremy Schneider, managing director and RMBS sector lead, S&P Global Ratings, in summarizing panelists' outlook at the Americas Structured Finance Conference.
Panelists described the residential mortgage-backed securities market's situation as one in which origination prospects are limited for refinancing and challenging for the purchase market, as high rates and other affordability pressures make converting renters to buyers challenging.
And while only a sliver of the market has refinancing incentive, the opportunities could be intense for the slowly growing segment of more recent market entrants with higher rates when financing costs do fluctuate.
Experts at the conference noted that if consumers start using AI to efficiently track and respond to rate changes, refinancing activity could become more intense than in past cycles.
This means companies may want to devote some combination of technology and personnel to these prospects.
Already, large swaths of high coupons are showing responsiveness to rate opportunities.
A recent report from government-sponsored enterprises that buy a large number of mortgages made in the United States shows the fastest quartile of loans with a 7% coupon had three-month prepayment rate as high as around 50-60% in 2023-2025 vintages as of June.
At deadline, the slight uptick in broad unemployment had initially put some downward pressure on mortgage rates given its potential to make policymakers think twice about a short-term rate hike. But rate-indicative
S&P conference panelists said that the combination of inflation, mild employment pressure and higher rates should be monitored in some consumer finance sectors like autos but had put less pressure on mortgage performance to date.
However, some panelists warned that the potential for distressed consumers to potentially prioritize other payments such as cell phones over mortgages still exists.
