Story first appeared in the Detroit Free Press.
After four years of rapid growth and expansion, mortgage lender
Michigan Mutual laid off nearly a fifth of its workforce last week as
the mortgage industry as a whole adjusts to rising interest rates and a
slowdown in the once-booming refinancing business.
The majority of
the 68 layoffs on Aug. 26 were at Michigan Mutual’s Southfield office
and mostly involved loan underwriting and loan-processing positions,
said Hale Walker, co-founder of the Port Huron-based firm. It now
employs 355 workers, down from a peak of 465.
“It was heart-wrenching to have to lay off people,” he said. “This is the first time that we’ve had to do this in 20 years.”
blamed the need for layoffs on several factors that industry experts
say also are affecting the nationwide mortgage market, particularly
rising interest rates.
Big national lenders such as Bank of
America, Wells Fargo, Citicorp and Troy-based Flagstar Bank have all
announced layoffs in recent weeks, citing the affect of higher rates on
the refinance business.
Some of these same institutions did
significant hiring in the past two years to help process the heavy
inflow of applications from borrowers wishing to refinance their home
mortgages at historically-low rates.
But because interest rates
began to climb this spring, there has been less interest in refinancing
and less work for the staff to do.
Flagstar Bank made an
undisclosed number of recent layoffs due to the fall in refinance
activity, President and CEO Alessandro DiNello said Wednesday.
a mortgage business that’s so cyclical and so dependent on rates, when
production declines, you’re going to have a declining workforce as
well,” DiNello said, adding that Flagstar Bank continues to hire in its
home purchase mortgage lending business.
The average rate on a
fixed 30-year mortgage was 4.5% last week, up from 3.4% in early May and
3.6% a year ago, according to a market survey by government-backed
Data compiled by Inside Mortgage Finance Publications
show how refinance activity has been slipping. In the first quarter,
refinance activity represented 76% of all mortgage originations. That
fell to 67% in the second quarter and is projected to hit about 60% by
the end of the current third quarter.
“Rates kept falling and
falling and people were refinancing two or three times, and that trend
is over,” said Paul Muolo, managing editor at Inside Mortgage Finance
To offset the lost refinancing business, many
lenders are pushing to gain a bigger piece of the pie in the purchase
“They’re all going to try to move into this
business of making mortgages for people to buy homes, but there’s only
so much room on the life raft and you’re going to see more of this,”
Muolo said, referring to the recent layoffs.
DiNello said that due
to market conditions, Flagstar’s total mortgage origination volume for
the year is on pace to be about $10 billion lower than last year’s $53
Yet his firm, one of the nation’s largest wholesale
mortgage lenders, is hoping to see continued growth in its retail
lending operations for people buying new homes.
business is going to continue to decline, and then what us mortgage
lenders hope is that the economy picks up at enough of a pace to make up
for a good portion of that lost refinance business,” DiNello said.
realistically, I don’t think the economy is going to grow fast enough
to make up entirely for that lost refinance business, so what all of us
are going to try to do is gain market share.”
For Michigan Mutual,
another factor in last week’s layoffs was the April 1 increase in
mortgage insurance premiums on new Federal Housing Administration loans.
FHA loans are “a very big product for us, so the volume of that
business has gone down,” said Hale Walker, who co-founded the firm in
1992 with his brother, Mark Walker.
Michigan Mutual, which changed
its name from First Preferred Mortgage on Jan. 1, reported $1.8
billion in business last year, up from $1.1 billion in 2010.
Once other aspects of its lending business pick up, Michigan Mutual hopes it can rehire many of the employees who were let go.