“Last night my Uber driver was a loan officer.”

The steady pace of austere news in the mortgage industry punctuated by headlines announcing layoffs and closures in the ranks of independent mortgage banks continues to play out, with several lenders over the past two weeks adding to the torrent of pink slips.

The rise in interest rates, triggered by Federal Reserve tightening policies, is the main cause of pain for the mortgage industry right now. Last week, mortgage lender and manager Mr. Cooper revealed that it was laying off some 800 employees.

About 80% of the volume of our industry is done by about 40% of the LOs. And so the bottom 20% of the volume [handled by 60% of LOs] this is the part that has not yet appeared in [the layoff] data again.

Garth Graham, Senior Partner at Stratmor Group

Similarly, news broke this week revealing that the Independent Mortgage Bank (IMB) New US funding had cut its ranks of employees by 240 – followed by news that the non-QM lender Athas Capital Group closed its doors and laid off more than 200 employees. In September alone, IMBs cut some 8,200 jobs, a recent Inside Mortgage Financing analyse of US Bureau of Labor Statistics the data shows.

These job losses, however, are just the tip of an iceberg that is expected to sink even more careers into the ranks of CIOs before the ice thaws. Garth Graham, Senior Partner and Director of M&A Activities for the Stratmor Groupsaid many of the layoffs in the IMB industry so far have been for employees in support roles, with loan officer jobs being the latest to be dropped.

“This whole cut didn’t really start until about March, so we’re about six months into this cycle,” Graham said. He added that there were around 440,000 to 450,000 people employed by IMBs “at the top of our industry”. [last year]and there were only about 300,000 before rates started falling during COVID [pandemic].”

“So there are about 150,000 people too many,” Graham said. “In these 150,000, there are a lot of people of origin, and LOs are just starting to be impacted.”

Trace loan officer output

Graham predicts the overall layoffs will ultimately affect 40% to 50% of the IMB industry’s total mortgage origination staff and about a third of the industry’s overall employment. IMBs are non-custodial credit institutions which, according to the Urban Institute‘s Housing Finance Policy Center, account for nearly 77% of all agency-eligible mortgages nationwide.

“The MBA just released its latest forecast, and everyone is hanging on to the $4.4 trillion [mortgage origination] market [in 2021] now expected to fall to a $2 trillion market [next year]”, Graham said. “I’ve been hanging on to the 13 million first mortgages we did last year and are expected to be 5.5 million next year.

“From a staffing perspective, that looks a lot more dire than the $2 trillion title.”

Jeff Walton, CEO of a mortgage data analytics company InGenius, during a recent interview offered this perspective on how dire conditions are for some in the industry: “Let me put it like this. Last night my Uber driver was a loan officer.

The data provided by InGenius offers a deeper insight into the state of the industry for loan officers. According to InGenius, in 2021 the total headcount of loan officers nationwide was 353,119 – with 234,070 LOs having originated three or more loans.

This is an increase from 263,494 LOs in 2019, with 180,713 of this group having issued three or more loans for that year, representing an increase of almost 30% between 2019 and 2021 (the refinancing boom) for the most active loan officers.

As of July 15 this year, however, about six months into the rate hike cycle, InGenius data shows there were 276,837 licensed loan officers in the country. Of that total, 188,264 had three or more mortgages, down 45,806 from 2021, down nearly 20% over the period among the most active LOs.

This means that the current loan officer workforce has already been reduced to levels close to LO employment in 2019. Graham points out that most of this 20% drop in LO workforce as of July 15, compared to to 2021, however, occurred after the first quarter of that year.

The top 20% of lenders account for 80% of lending volume and employment. Therefore, unless there is substantial consolidation at the top, you should be able to gauge job losses by watching for layoffs in the larger 200 [IMB] companies, which is on the right track.

Brett Ludden, managing director at sterling point advisors

Graham predicts that by the end of the year, this figure could reach an overall reduction of 40-45% in LO workforces, compared to 2021.

“About 80% of the volume in our industry is done by about 40% of LOs,” Graham added. “And so the bottom 20% of the volume [handled by 60% of LOs] this is the part that has not yet appeared in [the layoff] data again.

“There’s not a lot of volume at the bottom. The converse of this is that the top 40% of OL perform 80% [of the volume] are worth a lot to good companies.

Graham added that industry-wide, IMB employment is “certainly returning to pre-COVID levels at 300,000 total jobs.”

“It’s painful for the 150,000 [or so people that are going to lose their jobs]he said, “but this is…not an existential meltdown like we had in 2008.”

Read job tea leaves

Brett Ludden, managing director of mergers and acquisitions at Sterling Point Advisorspredicts that the overall reduction in employment among the nation’s 1,000 largest IMBs could reach 54% by mid-2023. 272,000 IMB jobs could be lost by mid-2023, which would result in a total workforce of 229,000 people in the industry.

Ludden points out that the projections are based on modeling estimates, adding that the best measure of job losses in the IMB industry will be revealed by the lenders themselves.

“The top 20% of lenders account for 80% of lending volume and employment,” he added. “Therefore, unless there is substantial consolidation at the top, you should be able to gauge job losses by watching for layoffs in the Big 200. [IMB] companies, which is on the right track.

A recent report from fitch reviews says the decline in mortgage originations in 2022 continues to exceed the rating agency’s expectations, leading to lower revenues for lenders due to “lower origination volumes outpacing spending cuts.”

“Layoffs, channel exits and asset sales have accelerated, even with better capitalized players,” the Fitch report notes. “Town, JP Morgan and Wells Fargo reduce staff and operations, while Santander exited the US mortgage market in February and partnered with Rocket [Mortgage] to issue mortgages for its clients.

“Small players such as real estate tech startups Reali and Sprout Mortgage closed, while First Guaranty Mortgage Corp. filed for Chapter 11 bankruptcy. [In addition,] loanDeposit exited the wholesale channel, intending to sell its $1 billion pipeline and refocus on consumer/retail channels.

Optimistic and well-prepared companies are beginning to see opportunities to recruit key personnel and prepare for a refinancing boom when rates eventually come down.

Andrew Rhodes, Principal and Head of Trading at Mortgage Capital Trading

David Hrobon, a director of the Stratmor Group, wrote in a recent commentary that by the end of the year, the mortgage advisory firm expects around 50 IMB merger or acquisition transactions “will be announced or closed,” which is “50% more deals than in 2018, the next highest year for lender consolidations in three decades.

“Additionally, according to the Bureau of Labor Statistics, our industry employed 427,000 employees in March of this year,” Hrobon added. “Given the [dour] loan volume forecast… the number of businesses and employees in the industry will no doubt look very different at this time next year.

Ludden predicts that up to 30% of the top 1,000 IMBs will disappear by the end of 2023 via sales, mergers or bankruptcies following the double whammy of inflation and still-rocking interest rates. rise.

“You have a number of entities that are mortgage originators and are seeing significant declines in mortgage volumes and [loan] price,” wrote John Toohig, head of whole loan trading at Raymond Jamesin its weekly online newsletter, “Let’s Talk Loans”, published on LinkedIn. “Startups skyrocketed on ultra-low rates, people got hired fast, mortgage bankers made a ton of money, multiple IPOs, the market got crowded, then the Fed took the punch bowl [by unleashing higher interest rates].”

How bad will it get?

Tom Piercy, Managing Director of Incenter Mortgage Advisorssaid that in general, the outlook for the housing industry is “poor for the foreseeable future.”

“However,” he added, “it could be very good for companies that are well positioned on their balance sheets, which means lower debt ratios and strong cash or liquid assets, and they have profitable retail originations.” Piercy said those lenders will see the opportunities grow.

“The mortgage market will consolidate, but that comes from recent record profits and the boom years [in 2020 and 2021]”said Andrew Rhodes, Sr., Director and Head of Trading at Mortgage capital negotiation. “Optimistic and well-prepared companies are beginning to see opportunities to recruit key personnel and prepare for a refinancing boom when rates eventually come down.”

When will this rate change begin? Graham from Stratmor said, based on the Mortgage Bankers AssociationAccording to the most recent forecasts, we can expect “a recession and lower interest rates in the second half of next year”.

“The first time [the Federal Reserve] lower rates, that’s the start of the change,” added Walton of InGenius. He said there will likely be a lag between any rebound in the housing industry and a decision by the Fed to start lowering interest rates.

“But, if rates come down precipitously, like they’ve gone up, then you’ll see the rebound much faster,” Walton added. Until then, he said, productive loan officers, “those who are part of the 40% doing 80% of the business”, they will stay in the trenches adding more prospects and borrowers to their lists.

“I was a loan officer when I started in the business,” Walton added, “and through the downturns I just added more realtors and builders or whatever, and I always got myself came out better on the other side because I had resistance.”

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