The current market downturn for mortgage lenders may be shorter than the previous cycles, mainly due to the recent rounds of workforce layoffs imposed by nonbanks.
“While it is true that many nonbanks entered this downturn with a large war chest of cash and capital, this is more than offset by the impact of warehouse and investor covenants, which are causing lenders to move expeditiously to cut costs,” Jim Cameron, Stratmor Group’s senior partner, wrote in a report published this week. “In short, while this downturn is very painful, perhaps we will get through it faster.”
Nonbanks have more than 60% market share of mortgage industry production — and they are more likely than banks to move quickly to reduce capacity. Based on recent data from the Mortgage Bankers Association (MBA) and Stratmor, Cameron said nonbank turnover rates for processors, underwriters and closers were typically in the range of 35% to 50% in the first half of 2022, compared to 18% to 22% for banks.
According to Cameron, the recent downturn has delivered the biggest and fastest rate increase in modern history — and the sharpest volume and revenue decrease the mortgage business has ever seen.
So far, the shrinking market has caused the total production revenue of mortgage companies to decline by 2.7% quarter over quarter and 18% year over year, to 396 basis points in the third quarter, according to a report from a group of analysts at Keefe, Bruyette & Woods, Inc.
Looking forward, the analysts say that industry profitability will likely remain challenged, with seasonal weakness in the fourth quarter of 2022 and the first quarter of 2023. According to the analysts, the recovery, which will take time, will depend on the pace at which the industry is willing and able to cut capacity.
Cutting capacity
This week’s round of layoffs includes mainly nonbank lenders.
Home Point Financial Corporation, the parent company of the pure wholesale lender Homepoint, cut about 100 employees in four states on November 17, according to WARN notices filed by the company.
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The company sent pink slips to 49 staff members in Texas, 30 in Michigan and 10 in Florida. There’s no WARN Notice made public in Arizona, but the company has confirmed a document was filed with the state employment department.
“I can confirm that we had done some reductions last week and filed WARN notices in four states, and it impacted about 100 people in total,” a spokesperson for the company wrote in an email to Housingwire.
In Florida, where the WARN Notice brings more details, the company cut job positions related to the origination, such as a document coordinator and two senior loan coordinators. Funding staff members, including a warehouse funder and a warehouse specialist, were also laid off.
None of the employees are represented by a union, and the layoffs included both remote and in-person employees.
The latest layoffs are in addition to the 913 Home Point employees cut in early September. In total, Home Point has shrunk its workforce from about 4,000 workers in the summer of 2021 to about 1,000 in the fall of 2022.
Over the last year, it has also sold off large chunks of the business – including sub-servicing with ServiceMac and delegated correspondent to Planet Home Lending – which accounts for several thousand workers transitioning to new firms.
Illinois-based Interfirst Mortgage, legally known as Chicago Mortgage Solutions LLC, issued pink slips to employees this month amid forecasts that housing sales are expected to slump even more next year than 2022.
While Interfirst Mortgage has not responded to requests for comment, positions affected by the layoff included a closer, processor, business analyst and loan officers, according to former employees’ LinkedIn posts.
“As the mortgage industry has not been so favorable, another mortgage industry layoff occurred last week,” said a former employee on LinkedIn. “Unfortunately, I was one of those employees affected by the layoff along with some great colleagues and friends I met along the way.”
“The mortgage business is a cyclical one..We all knew this when we signed up,” wrote another former employee on the social media network. “I have worked for the same company for 27 years and hope to be back again perhaps in a different capacity.”
Founded in 2001 as a retail originator, Interfirst Mortgage expanded into wholesale in 2008 and added a correspondent channel in 2011. After origination volume plummeted nearly 86% to $2 billion in 2016 from $14.1 billion in 2012, the company decided to shutter its business in 2017. However, it relaunched three years later with a proprietary loan origination platform that allowed Interfirst to eliminate upfront fees and cut interest rates.
It was last year that the company raised $175 million, led by StoicLane, to fund new technologies. Since relaunching operations, Interfirst also hired teachers and first responders to be loan officers. Instead of offering commission splits to LOs, they paid a salary between $44,000 and $68,000 annually.
The company has 30 active loan officers with four branches across the country, according to mortgage tech Modex. A snapshot of its operation offers an explanation of Intefirst’s struggling business. The lender originated a total volume of $953.2 million year-to-date, dropping from $2.14 billion in 2021.
About 95% of its volume this year came from refis, and purchase origination accounted for less than 4%. Originations in October 2022 plummeted more than 95% year over year to $10.7 million.