There’s been plenty of debate lately about the potential consequences of rising mortgage rates, with an outright housing recovery derailment topping the list of concerns.
However, most economists have been quick to downplay the risks of rising rates, which have shot up from near-record lows to two-year highs in a matter of months.
In fact, many of these pundits simply expect refinance activity to slow, while the housing market recovery continues on its merry way, in spite of decreased affordability.
Of course, the experts have made some concessions along the way; most recently, Fannie Mae’s Vice President of Applied Economic and Housing Research argued that higher mortgage rates should slow purchase volume and result in a larger adjustable-rate mortgage (ARM) share.
At the same time, Fannie’s researcher didn’t think higher interest rates would lower home prices, but rather only slow the speed of appreciation, which has been on a tear lately.
Then there’s Ara Hovnanian of K. Hovnanian Homes, who argues that higher mortgage rates will just lead to smaller home purchases, and at worst, the purchase of a townhouse if affordability takes a serious dive. Don’t worry, he’s got a smaller home design in the pipeline…
Here Come the Layoffs
All that debate aside, one thing is for certain. There will be fewer mortgage jobs going forward. I anticipated this in my 10 predictions for mortgage and housing in 2013.
It wasn’t hard – I knew mortgage origination forecasts were being slashed going into the year, with refinance volume expected to fall from $1.2 trillion last year to $785 billion in 2013, per the MBA.
Meanwhile, purchase-money mortgage volume was only slated to rise from $503 billion to $585 billion, probably not enough to add many new positions, or offset the fallout in the refinance department.
With volume predicted to be well off recent levels, it didn’t take a genius.
And seeing that rates have increased a lot more than projected, those numbers may turn out to be even worse. For the record, I was wrong about mortgage rates. I expected sideways movement for much of the year. I concede.
Anyway, the mortgage layoffs have already begun, with Wells Fargo announcing late last week that it was cutting 350 employees nationwide as a result of higher home loan rates.
Wells Fargo spokesperson Angie Kaipust said increased demand during the low interest rate environment enjoyed over the past few years meant it could “staff up,” but now that rates are a bit more realistic, headcount must align.
The San Francisco-based bank plans to cut jobs in a number of cities, including Des Moines and Minneapolis.
Then there’s Citi, which reportedly opened a sales facility in Danville, Illinois after demand for mortgage refinances surged. Sadly, the unit is being shuttered, and roughly 120 employees will be laid off.
These are but two examples. Many smaller shops are probably slashing their workforces as well, though such news won’t make the headlines.
2014 Mortgage Origination Forecasts Point to Even Fewer Jobs
The outlook isn’t exactly bright for 2014 either, according to the latest housing forecast from Fannie Mae, so expect more heads to roll as volume continues to dwindle.
Yesterday, the GSE noted that residential lenders are expected to originate just $1.07 trillion in loan volume in 2014, down from $1.65 trillion this year, and about half the $2.03 trillion seen in 2012.
The refinance share, which was 73% in 2012, is expected to fall to 62% this year, and to just 31% in 2014. Only the advent of HARP 3 could make a meaningful impact at this point, and it doesn’t seem likely now.
Fannie expects purchase activity to rise from $619 billion this year to $741 billion in 2014, while refinance activity is forecast to plummet from just over $1 trillion to $331 billion.
Clearly few loan officers will be needed to handle that sharp drop in demand.
Update: It’s starting to feel like 2007 all over again – I’m receiving tips again about branch closures and layoffs. The latest being, “Residential Finance of Columbus Ohio hacked 19 branches yesterday and a regional manager.”
About the Author: Colin Robertson
Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.