Mortgage Companies laying off employees

[squiffy]

Here is an article in the LATimes from Dec. 15 My comments are in the second post.

Mortgage Industry Braces for Layoffs
Home loan providers are expected to shed workers as rising interest rates slow refinancing activity.


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ECONOMY

LAYOFFS

MORTGAGES REAL ESTATE INDUSTRY LAYOFFS ECONOMY

REAL ESTATE INDUSTRY

MORTGAGES











By Karen Robinson-Jacobs, Times Staff Writer


With much of the steam out of the refinancing market, the mortgage financing industry is bracing for widespread layoffs.

Two of the biggest home loan providers in California and the nation — Washington Mutual Inc. and Countrywide Financial Corp. — have cut more than 6,500 jobs in recent months. And lenders are preparing to ax thousands more positions in the coming months.

In all, about 65,000 people nationwide employed at firms specializing in mortgage lending probably will lose their jobs over the next 12 months, according to the Mortgage Bankers Assn.

That represents about 15% of the peak employment in late summer, when 435,000 workers were processing home loans as borrowers scurried for fear of missing out on historically low mortgage rates. The association's estimate doesn't include jobs at banks that don't have separate mortgage subsidiaries, and there was no breakdown of the data by states.

But there's no question that California in particular has a lot riding on this industry. Data from the state's Employment Development Department show that employment in the two sectors that include mortgage lending and brokerage services jumped 18% from 2000 to 2002, to 110,200. And the sectors have added workers this year, even as overall employment has fallen slightly.

Fueling the growth: booming home sales and refinancing activity.

Statewide, the volume of refinancings totaled $169 billion in the second quarter, up 74% from a year earlier, according to the latest figures from DataQuick Information Systems. Meanwhile, home sales in California are expected to reach a record 574,300 units this year, the California Assn. of Realtors said.

But the Realtors group is projecting that California home sales will fall 4.5% next year, and refinancings already have slid since interest rates started creeping up after hitting a more than 40-year low of 5.21% in June. Last week, the 30-year, fixed-rate mortgage averaged 5.88%, according to giant mortgage lender Freddie Mac.

"Over the past 2 1/2 years, a lot of people were hired to handle all of the refi business," said Steve Hops, a board member of the California Mortgage Bankers Assn. "Now there's a lot of overcapacity and the industry can't support it. So there will be some contraction, and we're starting to see that now."

Last week, Seattle-based Washington Mutual, the nation's second-largest mortgage lender, said more than 2,000 home-loan staff members — mostly in temporary and contract positions — would be cut in addition to the 4,500 workers let go since August.

The company said it expected its mortgage volume in the fourth quarter to fall by 50% from the third quarter. Reflecting that downturn, Washington Mutual Chief Executive Kerry Killinger reduced earnings guidance for the year to $4.15 to $4.25 a share, from an earlier forecast of $4.43.

Calabasas-based Countrywide Financial also has been slimming down as refinancings have faded. The company has cut about 2,200 jobs — in loan originations and closing services — since mortgage employment peaked in July at more than 22,000 workers, spokesman Rick Simon said.

Wells Fargo & Co., the nation's largest mortgage lender, declined to comment about its employment plans.

"At any given time, we may be reducing staffing levels in one area but adding in another," the San Francisco-based bank said in a statement.

According to the Mortgage Bankers Assn., total mortgage originations are expected to hit a record $3.4 trillion this year, up 35% from a year ago. Refinanced mortgages account for about 60% of that total, or more than $2 trillion.

Next year, the association predicts that mortgage loan volume will fall by half to $1.6 trillion, with refinancings making up only 28% of the total.

"We've never seen a refi boom as dramatic as the one that's coming to a close now, never in the history of the planet," said Charlotte Chamberlain, an analyst with Jeffries & Co. who tracks companies including Countrywide and E-Trade Financial Corp.

As was the case with E-Trade, which in August gave pink slips to 163 employees, most of the downsized workers in the industry thus far have been temporary or contract hires.

Even if specialty mortgage firms eliminate 15% of their staff as projected, employment overall will still be about 370,000 — 50% more than their payrolls during the 1993-94 refinancing boom, according to the Mortgage Bankers Assn.

"I don't expect any big shock waves from this," said G.U. Krueger, chief economist with IHP Capital Partners, an Irvine venture capital fund that works with housing developers.

"It's going to take away some of the impetus that had been coming from the mortgage sector, which has been a plus in California and the national economy. But it's coming at a time when other industries are growing again," Krueger noted. "Housing's not the only thing now that's growing."

[squiffy]

This ties in with my discussions re: mortgage lenders and homebuilders. Plus my discussions re: LA real estate.

It may well be that homebuilders still have permits out to 6 months or 1 year. So maybe homebuilders lag mortgage lenders. It is easy and quick to sell a home when demand is hot, but it takes months to build one. So homebuilders may be busy working for awhile.

But mortgage lenders are already laying off huge numbers of people. Are they all stupid. Are they irrational idios? Or are they already reacting to the fact that mortgage lending is slowing down and tanking.

Remember mortgage lending makes money from new home sales and REFIS. If interest rates rise refis will dry up very very very quickly. New home sales may continue for a bit, but will slowly start to dry up.

So again, I cannot like mortgage lenders over the long run if they are already firing people. Huge numbers of people. You might be able to make a profit over a one month or two month time frame. But I try to focus on stocks that are at a low.

[adios]

[Wildbill]

This industry will never be staffed optimally. The problem is that the highs and lows of the volume are impossible to predict. After all, if these guys could predict the way rates will go even 60% of the time they would make more money betting on interest rates than being in the mortgage business [img]/images/graemlins/grin.gif[/img]

The problem is when the business is booming you can't have enough employees around to do all the processing you need. When business is slow they are a major drag on earnings. Most do what you would expect, they stay as lean as they can get away with and hope that when you are getting a mortgage and sign on the dotted line they will have you locked in and will improvise to make sure they meet the deadlines they have.

LA real estate could be in for some trouble, but not too much I suspect. Part of the problem is that nothing is affordable no matter how far out you go. Houses 60 miles from LA aren't affordable for the average family, let alone the houses 10-15 miles from LA. That used to be a big point because it drove the home building segment. At some point I think they will just essentially run out of feasible land to meet the continued demand of new residents. After all people can certainly commute a long distance, but when people are offered only the option of living near Palm Springs or Victorville it just becomes completely unreasonable. So the new home building is now becoming nothing more than an infill project here or there and teardowns. There aren't large plots of land left, that will deter new supply so prices can't really go down. How much can they go up? Hard to say, the affordability is so bad now that selling homes becomes so difficult. The only thing that would make a difference is if the economy went bad around LA, but I just can't see that happening as the economy if anything will recover.