Mortgage Firms Face Tough Choices Over Job Cuts, Overhead Cost in Housing Slump
By nearly every yardstick, 2018 was a rocky year for the mortgage industry. Rising interest rates stalled refinancing and discouraged many homeowners from moving, while sky-high home prices kept a lot of first-time buyers out of the market. The industry reported negative first-quarter profits for the first time in years.
So far, the national picture for 2019 has been a bit better. The 30-year fixed-rate loan has backed off from December’s eight-year high. But with the overall economy strong enough that the Federal Reserve Board is still forecasting two rate hikes this year, many mortgage companies expect more lean times. They’ve been scaling back commissions, buying less equipment, cutting corporate allocations and — yes — eliminating jobs.
“I do believe you’ll see more layoffs,” Fannie Mae’s chief economist Doug Duncan said.
Duncan said Fannie Mae’s most recent Sentiment Survey indicated that trimming fixed overhead costs had become a bigger priority throughout the industry.
Wells Fargo, JPMorgan Chase and USAA all laid off employees last year. Movement Mortgage had three rounds of layoffs in the last 12 months, with CEO Casey Crawford telling remaining employees in a video that went viral that the company can’t compete without cutting back.
These changes are common — and not unexpected — considering the high costs of overhead and the mortgage loan industry being cyclical. Companies go on hiring binges during good times and shed jobs in downturns. It’s simple math: reduce your overhead and profit should return.
But this cycle carries a financial and emotional price. It’s costly to eliminate jobs. You hate to let talented people go. And there’s no guarantee you can get them back when business rebounds. Companies must assess whether they can afford to ride out this rough wave.
Here are some things to think about:
High interest rates may finally bring down single-family home prices this year, potentially luring reluctant buyers back into the market. Realtors do expect single-family home sales to rebound, at least a little, later this year. If those make up the majority of your business, that could help.
Rates may also not ultimately rise as much as the Fed expects. A number of factors — trade wars, the impact of the government shutdown and still-volatile stock markets — could tap the nation’s economic brakes for the Fed and keep them from needing to act.
As of right now, however, the outlook isn’t pretty. A refinancing rebound probably won’t happen any time soon. Home sales might only improve in select popular markets. And a total reprieve from rate hikes could mean the economy, as a whole, isn’t roaring like it has been. These grim facts are why those major lenders started cutting jobs a year ago.
If you do reach the tough conclusion that job cuts are unavoidable, consider ways to reduce your overhead costs on a more permanent basis. Using third-party companies to manage your marketing and other duties might be a smart option. Technology could also offer ways to streamline your workflow. These are long-term strategies, but the fewer positions you need to fill in the best of times means fewer people to let go if things go south.
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