Rising rates and halt to refinancing are responsible for the fall in the mortgage sector

Headlines across the country continue to trumpet the recent crisis in the mortgage industry, as thousands of credit professionals now find themselves furloughed for the time being.

Industry giants like JP Morgan Chase and Loan Depot plan to cut thousands of jobs, while published reports indicate layoffs number in the hundreds at Wells Fargo, USAA Federal Savings Bank, First Guaranty Mortgage Corp, among others. Better.com, a New York-based digital lender, has already laid off more than half of its staff.

So how does this alleged collapse in the mortgage industry affect potential buyers, as well as other banks and mortgage companies? Linda McCoy, president of the National Association of Mortgage Bankers (NAMB), told The Epoch Times that the industry will survive and those who want to buy a home won’t be in danger of having to search extensively for a loan.

“Basically, we’ve had so much volume over the past two years that the industry just couldn’t handle it and as a result had to hire a lot of people,” she explained. McCoy, owner of Mortgage Team1, Inc. in Mobile, Alabama, recalls the days when they “just couldn’t stop working.”

“We were all so busy taking care of a lot of people, and when things started to slow down, some companies naturally had to lay off those extra employees,” she said.

Founded in 1973, NAMB is the voice of the mortgage industry and includes small business owners, loan originators, account executives and allied professionals. With nearly 30 years in the business, McCoy admits she’s never seen anything like the buying spree in the past two years. “It was definitely an anomaly,” she added. “COVID helped create the need for more housing as people yearned for more space and kept buying. Even before April of this year, we still couldn’t answer all the phone calls. »

Another reason for the recent wave of layoffs, McCoy notes, can be attributed to declining refinancing. Companies specializing in refinancing were particularly hard hit when mortgage rates started to climb.

McCoy predicts that the mortgage industry, as well as the real estate market, will start to return to normal by the end of this year and the beginning of 2023. She also thinks that potential buyers could be offered more choice, less bidding wars and possibly even lower prices.

“There is going to be a natural downturn and we will all have to get back to basics and work hard,” she said. “We can no longer just be ‘order takers’.”

For those who have lost their jobs recently, McCoy predicts that many administrative staff will turn to other industries, while underwriters and loan officers may consider career changes. “Just like in 2008 when the real estate market crashed, many loan officers and real estate professionals changed jobs,” she said.

Homes stand in a Brooklyn neighborhood with a limited supply of single-family homes for sale in New York City on March 31, 2021. (Spencer Platt/Getty Images)

“Ready to hire”

Motto Mortgage Home Services, a locally owned and operated lender in the Chicago suburb of Oakbrook Terrace, is still going strong. The company, owned by husband and wife team Kelly Jackson and Davina Arceneaux, is part of Motto Mortgage’s nationwide network of more than 150 independent offices in 40 states.

With a current total of seven people, Motto actually plans to hire three more employees. “We started the business in July 2020 at the height of the refinancing boom, but we decided to focus on purchases, so we’re really unaffected by the recent downturn,” Arceneaux told The Epoch Times.

In fact, she admits, it has been difficult for them to find quality people during the shopping rush of the past two years. Because potential candidates were so busy making so many transactions, Arceneaux and his team struggled to keep up with the volume. “As owners, we had to put on our loan officer hats just to keep up the pace,” she said. “Now we’re in the opposite position of a lot of other lenders because we’re ready to hire.”

Arceneaux said they are now finding plenty of good candidates available and want to invest now in quality people so they will be ready when the market picks up. One of the most recently offered positions – a loan assistant – was filled by a person with 20 years’ experience who had recently been made redundant by another lender. “It’s been a real blessing for us,” she added.

Typically, they handle loans with an average size of $250,000 to $300,000, with occasional loans of $100,000 to $200,000 and up to $1 million. Condominium loans are heaviest in Chicago itself, while single-family home loans tend to dominate the suburbs. “We have also increased our efforts to educate our clients and real estate professionals on all available loan products,” Arceneaux noted. This now includes adjustable rate mortgages (ARMs), Federal Housing Administration (FHA) loans, and paying off the mortgage rate with points — a fee paid to a lender for a reduced interest rate.

“I don’t think we’ll be back to 3% rates soon, but I think we’ll see a balance by the end of the year.

McCoy also predicts rates stabilizing in the high 5s or low 6s through the end of the year and the first quarter of 2023. “Six percent is still a good rate,” she acknowledged. “For those of us who have been in the mortgage business for a long time, we remember when it hit 18%!”

Risk for sellers

Ron Kirse is the Seattle District Manager for US Bank Home Mortgage, which lends in all 50 states and has offices in 26 states. “We haven’t had any layoffs on my team, but generally the operational side of banks and lenders has had to deal with layoffs basically because the volume of refinancing has disappeared,” he told Epoch. Times.

Kirse’s team has worked together for many years and has focused primarily on procurement. “We’re not at risk now, but sellers can become at risk over time if they don’t produce.”

Overall, Kirse noted, the mortgage industry saw the fastest rate increases in 22 years, from January of this year to April. “Last year, our West Coast divisions closed $4.5 billion in loans and of that $2.4 billion was in refinancing,” he said. “With the higher rates now, nobody wants to refinance.”

Like many other industries, lending can be cyclical, with relatively low mortgage interest rates in place for the past 10 years. “House prices have been rising at exorbitant rates, but now that mortgage rates are rising, I think you’re going to start to see house prices return to normal,” he added. “We also saw a 40% increase in ARMs.”

Its main producers are still operating with around 70-80% on home purchases, as opposed to refinancing. “The people who are struggling now are the ones who were too dependent on refinancing activity,” he said. “They didn’t keep their fingers in the buy side enough.”

While construction of new homes is lagging behind, Kirse doesn’t see this as an indication of a recession on the horizon. Arceneaux accepts. “There’s been a lot of talk about a coming recession, but at the end of the day if people keep their jobs they can pay their mortgages and I don’t see the mortgage industry being affected,” she said.

Marie Prenon

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Mary T. Prenon covers real estate and business. She has been a writer and journalist for over 25 years for various print and broadcast media in New York.

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