=DJ US Mtge Brokers Adapt To Life After The Refinancing Boom
11/19/2003
By Julie Haviv
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--New home starts may be at multi-year highs, but it's the slowing refinancing activity that's having a greater impact on mortgage brokers.
One of the few sectors that added jobs over the past year, the number of mortgage brokers registered a significant decline in September. And it looks like that downtick is just the tip of the iceberg.
"We've definitely started to see a turn in the mortgage industry in terms of layoffs," said Doug Duncan, chief economist at the Mortgage Bankers Association, a mortgage industry trade group. "We are just at the beginning here, and there is no doubt it has to do with a decline in business volume."
After aggressively adding jobs to keep up with the huge influx of mortgage refinancing applications, the number of mortgage and nonmortgage loan brokers in the workforce slumped in September, its first drop in almost a year and the largest registered in over a decade.
September's data from the Bureau of Labor Statistics showed a 3.5% drop in the workforce to 109,500, of which the majority are mortgage brokers. That compares with the nearly 100% surge in employment seen between January 2001, when the BLS registered 58,600 workers, until August 2003, when it peaked at 113,000.
And a look at the MBA's refinancing index this week explains why - the index has dropped around 75% from its peak end-May to 2,094 in the week ending Nov. 14. The home purchase index shot up 13.5% to 425.9, but this index's high was only at 460.5 this year. The rate on the 30-year fixed-rate mortgage rose in this period to 5.85% from 5.13%.
The bulk of the added business in the past years has come from mortgage refinancing and with overall mortgage volumes expected to fall 50% next year, the need to cut costs is evident.
Most of the layoffs so far have been in the temporary workforce, according to Duncan from the MBA.
"I would say in six months or so, most of the temporary workers will be gone and we will then see if they (the brokers) need to start letting go permanent staffers in order to cut costs," he said.
Some of the larger mortgage companies, such as Countrywide Financial (CFC) and Washington Mutual (WM), have already announced staff layoffs related to the loss of business.
But not everyone is shedding staff. In fact, some are actually hiring - as rates, even with the recent rises, are still at attractively low levels.
"Our volume has stayed strong and we are hiring about 50 new employees each month, most of whom are loan consultants and IT professionals," said Bob Walters, chief economist at Quicken Loans, an online lender.
"I have seen a substantial decline in mortgage applications in our company, but we are offsetting that by hiring a lot of new loan officers," said Dave Dopp, secondary marketing director at Benchmark Mortgage in Frisco, Texas.
Hiring new loan officers, and ensuring that they are well-trained, is one way to stay ahead in the business, Dopp said, adding "long term success in this business depends on selling service."
Benchmark Mortgage has underwritten about $180 million in mortgages this year.
And while the refinancing boom is over, that doesn't mean that consumers aren't still using their homes to free up cash.
"During the height of the refinance boom, consumers were rate shopping," Quicken's Walters said. "Now they are coming to us with a specific need, and our loan consultants are trained to help them get into the loan program that best meets those needs."
Quicken, which expects to close $15 billion in funded volume this year, is also changing its strategy.
"We have responded by developing a variety of loan programs to help meet those needs, including adjustable rate mortgages, interest only loans - which give homeowners more flexibility and choice - and our fully automated home equity line of credit that enables homeowners to tap equity without refinancing," Walters said.
Home equity loans and lines of credit allow homeowners to tap their equity without having to sell their home or do a cash-out refinance.
With fewer loans to refinance, many mortgage companies are seeing their profits getting squeezed, so consolidation is starting to emerge in an industry that most considered to be overcrowded even when the refinancing business was at its peak.
Merger and acquisition groups have recently been asking the MBA for mortgage company valuation models, which is a signal that industry-wide consolidation may very well be around the corner, said Duncan from the MBA.
"Companies are still dealing with the aftereffect of that huge wave of volume of activity that occurred in May and June, but once that settles down, consolidation is inevitable," Duncan added. |
