Mortgage industry pummeled by rising interest rates. In Charlotte, that means layoffs
As interest rates continue to rise, those hikes are already taking a toll in Charlotte’s mortgage industry in the form of job cuts.
The latest round of layoffs was confirmed late last month, when Nashville-based FirstBank told the N.C. Department of Commerce that it would lay off about 74 workers at its Charlotte office this summer.
But it’s not the only home lender with operations in Charlotte that’s making cuts: Wells Fargo, Movement Mortgage and Better.com have all laid off workers in recent months. The total number of cuts range from 170 workers at Movement to about 5,000 jobs eliminated at Better.com.
None of those three firms responded to questions from The Charlotte Observer about the extent of the cuts in their Charlotte operations.
The job losses coincide with an industry downturn that’s hurt part of the mortgage business, as lenders scramble to adjust to the impact of a steep rise in interest rates.
The layoffs also might be an early sign of economic unease in one of the country’s largest financial centers, as the prospect of another recession looms.
“I do think it’s a harbinger of what’s to come for the broader economy,” said Mark Vitner, a Charlotte-based senior economist with Wells Fargo. “Housing is one of the more cyclical parts of the economy, and it’s one of the first areas to turn down in a recession.”
Rising rates, fewer refinancing
The start of the current mortgage industry slowdown can be traced back to the Federal Reserve’s decision to raise interest rates this year.
The country’s central bank started hiking its benchmark rate in March, but rates on home loans began to rise in anticipation weeks in advance.
On Dec. 23, the weekly average interest rate for a 30-year fixed-rate mortgage in the U.S. was 3.05%, according to Freddie Mac data. By May, it was up to 5.3% — the highest it’d been in a decade.
The number of homeowners looking to refinance their mortgage soared during the COVID pandemic, when interest rates hit historic lows and borrowers could secure a better rate and lower monthly payment.
But as rates shot up, the number of borrowers looking to refinance dropped off sharply, said Guy Cecala, executive chair of Inside Mortgage Finance, an industry publication.
“It pretty much eliminated anyone thinking about refinancing, which has always been a big hunk of the mortgage market,” he said.
A May report from the New York Fed showed just how steep that decline was.
The refinancing origination volume — the dollar value of new loans — measured at nearly $750 million in the first quarter of last year, the central bank reported. That number dropped to just over $400 million for the same period this year, a 47% decline.
And that has left lenders scrambling to adjust to a rapid drop in business, Cecala said.
“It’s always a big adjustment to go from a record year in mortgage originations to a noticeable and sharp decline,” he said.
But these ebbs and flows are pretty standard. “That’s the cyclicality of mortgage lending,” Cecala added.
‘There’s no choice’
The mortgage market has been running so hot in Charlotte that a slight cooldown may be welcome for some, said John Adams, outgoing president of the Charlotte Regional Mortgage Lenders Association.
“Everything’s been super heated, particularly for the last three to four years,” Adams said. “And frankly, people (in the industry) made a lot of money… but they’re tired.”
He doesn’t think drastic local job cuts are likely, especially for established lenders that are familiar with the ups and downs of the mortgage business cycle. But among local mortgage managers, he said, he’s heard the tone start to shift.
“For the past four to six years it’s been ‘Please, do you know anybody I can hire?’ ” Adams said. “And now it’s… ‘We’re not gonna fill this (open) position, we’re not going to expand.’ ”
If the slowdown continues, layoffs may be the best or only option for home lenders, Cecala said.
“I think at the end of the day most lenders are going to have to reduce staffing in the mortgage area. There’s no choice about that,” he said. “A 30 to 40% drop in mortgage activity — there’s no real good way to offset that other than reduce your headcount.”
Local firms already laying off workers
Some local firms have already started making job cuts.
FirstBank will close the local office of its online mortgage business Real Genius, it told N.C. officials via a required WARN Act notice, eliminating dozens of processing, underwriting, sales and other roles.
The move is part of internal restructuring, the bank confirmed to the Observer. FirstBank is discontinuing the Real Genius channel.
Wells Fargo laid off an undisclosed number of employees in its home lending business in April due to market conditions, the bank confirmed to American Banker at the time. The news came on the heels of a report of lower mortgage origination volumes at the bank.
In a statement late Friday to the Observer, Wells Fargo said the cuts had been “the result of cyclical changes in the broader home lending environment” and it is carrying out the changes in “a transparent and thoughtful manner.” The bank did not say how many people lost their jobs.
Online mortgage lender Better.com, in its third round of job cuts in a five-month period, laid off an estimated 1,200 to 1,500 employees across the U.S. in April, TechCrunch reported.
The cuts have impacted employees in the company’s Charlotte office, the Charlotte Business Journal confirmed after the second round of layoffs in March. Better had opened its office in Charlotte in 2019, pledging to add 1,000 employees.
And Movement Mortgage, based south of Charlotte in Indian Land, S.C., laid off about 170 employees this spring, according to a report from trade publication HousingWire.
The challenging environment is hitting smaller, newer lenders harder than established firms or larger players, Adams said — especially lenders like Better, for which mortgages make up their whole business.
“We’ve seen it before and we’ll see it again,” he said of the recent slowdown. “But they’ve not planned for the margin compression.”
Large banks are more insulated from a mortgage slowdown, Cecala said. “They have more assets, a more diversified business,” he said. “As opposed to a non-bank mortgage lender, where that’s the only business they have.”
What lies ahead for the local mortgage market
Charlotte likely hasn’t seen the last of mortgage industry job cuts, Adams said.
“I think there will be a little further tightening,” he said. “I don’t sense it’s going to be massive changes for those who are established.”
In recent weeks, mortgage rates have dipped slightly from historic peaks: the U.S. weekly average interest rate for a 30-year fixed-rate mortgage dipped to 5.09% the week of June 2, down from 5.25% two weeks before.
Still, compare those rates to the same number from this time last year: 2.99%.
Sam Khater, chief economist at Freddie Mac, said in a Thursday news release that the housing market was “normalizing.” That’s “welcome news” following “unprecedented market tightness over the last couple years,” he said.
The housing market was whipped into a frenzy during the pandemic, Vitner, the Wells Fargo economist, said — something Charlotte homebuyers will be familiar with. If that abates, it could be good news for potential homeowners.
And it could set the stage for “more durable expansion” of the housing market, Vitner added. “If the market can slow and catch its breath… then the industry can grow again.”
The ideal, he said, is a housing market driven by economic growth rather than swings in interest rates. “That’ll be a much healthier housing market,” he said. “That would be very good for everybody.”
This story was originally published June 6, 2022 at 5:50 AM.
