Home mortgage lenders in the United States have spent most of the last two years hiring but may now have to lay off people in the coming months.

Since late 2019, the number of people working as mortgage and other loan brokers, a proxy for overall home lending employment, has increased by more than 50 percent to around 130,000.

This is the highest level since early 2006, just before the financial meltdown.

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Since August, mortgage rates have been growing, reaching 3.92 percent last week, the highest level since May of this year.

With borrowing becoming more expensive, applications to refinance mortgages have dropped by around 45 percent in the previous six months.

Jeff DerGurahian, chief capital markets officer at LoanDepot Inc, one of the largest lenders to consumers outside of the banking sector in the US said: “While some employees can be shunted into other parts of the mortgage business, such as making loans for home purchases, layoffs in the industry are inevitable, with rates moving higher, capacity is going to be adjusted across the entire industry,”.

Job losses would occur in the context of a labor market that has been solid as the United States recovers from the pandemic, with unemployment standing at just 4 percent in January.

Rising salaries are putting pressure on the Federal Reserve to raise interest rates as soon as next month in order to restrict economic growth and keep inflation under control.

Some lenders have already begun to tighten their belts.

Homepoint Capital, a mortgage provider, recently laid off approximately 10 percent of its workers.

During an infamous video conference call in December, Better.com, an online mortgage lender, dismissed about 900 employees.

Lenders in general are lowering their criteria in order to find more work for their workers.

The average borrower whose loan is bundled into a mortgage bond backed by Fannie Mae or Freddie Mac had a credit rating of 733 in January, down from 750 a year earlier.

That’s still a good score on the FICO scale, which ranges from 300 to 850.

Erica Adelberg, a Bloomberg Intelligence analyst covering mortgages said: “It’s unlikely that lenders will turn to subprime mortgages en masse because post-crisis regulations make that difficult to do profitably.

She added: “I don’t see us getting into a credit crisis problem like in 2008, though it may be happening around the edges, it’s more likely that the mortgage lending operation lays off people before they reach that far down the credit spectrum.”

The likely decline in mortgage jobs comes after lenders spent much of 2020 and 2021 staffing up.

As the Federal Reserve looked to help ensure the economy didn’t implode during the pandemic, it cut interest rates back to zero and 30-year mortgage rates dropped to as low as 2.65 percent by early 2021 from above 3.5 percent in early 2020. 

Cristian deRitis, an economist at Moody’s Analytics added: “A flood of loans followed, and with lower financing costs, housing sales jumped, contributing to overall U.S. economic growth.

“About 0.45 percentage point of the 5.7 percent growth in gross domestic product last year was because of the housing sector,”

Now volume is dropping.

The Mortgage Bankers Association expects volume this year to go down to $2.6 trillion from $4 trillion in 2021.

Alex Elezaj, chief strategy officer for United Wholesale Mortgage, one of the biggest wholesalers in the U.S. United Wholesale Mortgage said it does not expect layoffs in its business.

Mortgage wholesalers, lenders that work with brokers and third parties that tend to focus on purchase loans, may be in particularly good shape now.

Even if purchase volume is high right now, it may reduce in the future months since, in addition to rising mortgage rates, housing prices have grown over the last two years, making homes less affordable.

Source: Financial Advisor

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