It didn't take long for mortgage lenders to start laying off support staff and nonproducing loan officers as interest rates rose in December and refinancing applications plummeted through the month and into the next two.
"When production falls off, they will fire fast so they can maintain profitability," according to Drew Waterhouse, who recruits sales managers and originators for mortgage companies.
One warehouse executive, requesting his name not be used, told National Mortgage News that some of his nonbank clients have experienced volume declines of between 40% to 50% from their peaks. "Firms that focused on refis have suffered the most," he said.
Another warehouse official said three firms he works with have laid off 130 people over the past month. He declined to name them.
Mortgage companies sharply cut their payrolls in January by 10,300 full-time employees, according to the U.S. Bureau of Labor Statistics.
Employment in the mortgage banker/broker sector fell to 249,400 in January from 259,700 in December after being fairly stable over the course of 2010.
Waterhouse estimates that most of the cuts affected support staff involved in loan processing, underwriting and appraisals. He said in an interview only 15% of the layoffs could have been originators who specialize in refinancings and weren't producing.
Despite the dip in applications and the ensuing staff cuts, Waterhouse is not pessimistic about the outlook. He said demand for LOs who specialize in purchase money loans is up. And lenders are looking for "higher-quality loan originators." (Kislak Mortgage in Florida is one such firm. The company is hiring LOs with a strong background working with Realtors and builders.)
Waterhouse is encouraged by the latest national jobs report showing private sector companies hired 222,000 new employees in January. Hopefully, a brighter job picture will boost home sales and mortgage application volume.
Fannie Mae economists estimate that single-family loan production will drop 32% to $1.03 trillion in 2011 from $1.53 trillion last year. The refinancing share is slated to drop to 35% of loan volume, compared to 65% in 2010.
But the recruiter's contacts are saying mortgage applications rose in February, which "means we should see a better market in March and April—mainly for home sales."
Waterhouse is managing director of Hammerhouse LLC, which is based in Mission Viejo, Calif. He previously served as a senior manager at IndyMac Bank and led its in-house recruiting team to staff the bank's wholesale and correspondent channels. Before IndyMac, he managed the internal recruiting department at American Home Mortgage.
Waterhouse founded Hammerhouse in July 2008 along with a team of recruiters he managed at IndyMac Bank before it was closed by regulators. He recently opened an office near Charlotte, N.C., and is in the process of opening an office in Chicago.
Waterhouse said the fourth-quarter refinancing surge was great while it lasted. But after the one percentage point hike in mortgage rates by mid- December, "originations fell off a cliff." Some of his clients experienced a 50% drop in applications.
The first thing managers look at is fixed expenses and "they cut in January and February," he said in the interview.
Mortgage brokers also took it on the chin in the latest national jobs report. The Bureau of Labor Statistics data show a 4,700 reduction in number of mortgage brokers counted in January, following a 1,600 decline in December.
Besides interest rates and seasonal factors, personnel decisions also are being impacted by new regulations, Waterhouse said. He pointed out that the Federal Reserve Board's compensation rule is slated to go into effect April 1 and it will change the way all loan officers and mortgage brokers are paid.
