Mortgage Lender Layoffs

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.”
Walker 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.
“In 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 Freddie Mac.
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 Publications.
To offset the lost refinancing business, many lenders are pushing to gain a bigger piece of the pie in the purchase mortgage business.
“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 billion.
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.
“The refinance 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.
“Now 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.