Mortgage Industry Job Losses May Rise With Interest Rates

Ameriquest Mortgage Co.’s recent decision to slash 1,500 jobs is the start of a national shakeout in the home-loan business -- one that could cost tens of thousands of workers their jobs and squeeze weaker companies out of the business, industry experts say.

As interest rates have risen, refinancings have faded and applications for loans to purchase homes have begun to decline, according to the Mortgage Bankers Assn.

Many borrowers already have taken out equity from their homes through refinancings and second mortgages. If home prices level off, as many predict, these homeowners will have less equity to extract and less incentive to refinance.

Mortgage Bankers Assn. economist Doug Duncan said jobs would be lost as some companies pared their staffs and others were acquired or went out of business. The number of job reductions will depend on how high rates go, he said, with as many as 80,000 positions eliminated should 30-year fixed rates climb to 8.25%, up from 6.32% currently.

In addition to layoffs, experts also expect a shakeout in the ranks of mortgage brokers, the independent loan originators whose numbers have swollen along with the home-lending boom that began in 2001.

These brokers aren’t counted in the payroll surveys conducted by the government. John Marcell, president of the California Assn. of Mortgage Brokers, believes that they now total about 25,000 in the state, but predicts that’s about to change radically as ill-trained brokers who got into the business during the boom now find it harder to make a living.

“I would say probably half of what’s out there today could wash out,” Marcell said.

Any contraction could place a drag on the economies of mortgage hot spots such as Orange County, where several major lending companies are based.

In their annual forecast Thursday, economists at Chapman University in Orange said growth in mortgage-related employment already had slowed in the county and was expected to begin declining late next year.

That decline, along with an expected downturn in construction, could slow job growth in the county from 2.2% last year to 1.4% in 2006 and even further in 2007, Chapman economist Esmael Adibi said in an interview.

By reducing spending power and demand for office space, the loss of mortgage jobs can cause ripple effects through local economies like Orange County’s. Ryan Ratcliff, an economist for the Anderson Forecast at UCLA, said studies of the early 1990s recession showed that regions with large employment in the mortgage industry were hurt disproportionately in economic downturns.

Last month, Orange-based Ameriquest announced that it would reduce its staff by about 10% to become more efficient as the industry entered “a more challenging phase of rising interest rates.” Also, New Century Financial Corp. told investors that it had been reducing administrative staff at its Irvine headquarters modestly and would continue to do so. It didn’t disclose the number of job reductions.

Just how many additional cuts may be made is a matter of guesswork. Duncan of the Mortgage Bankers Assn. predicted in late 2003 that the home finance industry would lose 80,000 jobs as 30-year fixed rates moved from the 5% range to 6%.

The industry then shed 30,000 jobs but added them back and more as rates declined again, Duncan noted. He said he hadn’t tried to forecast how many jobs might be lost in the current downturn, but he believed that it would be fewer than 80,000 because interest rates were more likely to level off at about 6.8% than to rise into the 8% range.

Although industry executives appear to be bracing for a slowdown, some expect to come out stronger.

Countrywide Financial Corp., the nation’s No. 1 mortgage lender, predicts that it will increase its workforce from 54,000 now to more than 80,000 by the end of 2008, but will do so by stealing business and key employees from rivals.

Meantime, the Calabasas-based lender announced recently that it too would cut jobs next month -- 300 positions at its national loan-processing centers in Westlake Village and Sunrise, Fla. In a statement, Countrywide said the reductions reflected both a strategic decision to process loans at regional centers and the “industrywide slowdown in originations.”

Duncan said that in addition to job cuts, a round of takeovers was likely, providing big financial companies a chance to beef up their mortgage businesses to compete with industry-leading giants such as Countrywide, Wells Fargo & Co. and Washington Mutual Inc.

In an opening shot, North Carolina bank Wachovia Corp. said recently that it would buy San Diego-based AmNet Mortgage Inc. for $83 million.

The boom in mortgage lending took hold as the Federal Reserve cut its key short-term interest rate to 1% to stimulate the economy after the Sept. 11, 2001, terrorist attacks.

As the Fed has gradually raised the rate back to 4%, long-term mortgage rates began trending higher recently. Last month, 30-year fixed mortgage rates hit 6.37%, the highest level in more than two years. Mortgage company Freddie Mac said Thursday that rates averaged 6.32%, up from 6.26% last week.

Duncan said he expected to see some medium-sized companies to be sold or to go out of business because the intense competition in the industry -- a big factor in keeping rates down over the last two years -- had depressed profits.

The pressures on the industry are clearly visible from the inside, said Keith Karpe, a former public relations specialist for the California Assn. of Realtors. Karpe was fired last week from a mortgage lending job at Bank of America Corp. for reasons unrelated to the refinancing slowdown, but he said he had soured on the industry even before his dismissal.

The 55-year-old Laguna Beach man said he got into the business after hearing “stories that some people were making $15,000 a month.” After stints with two small brokerages, he took a job in July with Bank of America seeking “stability and benefits,” he said.

Instead, Karpe said, he found rough competition, with only a few well-established workers making good money and intense pressure from higher-ups.

“The day I arrived, the top two producers left and went to Countrywide,” Karpe said.

Bank of America spokeswoman Julie Davis said such defections were to be expected in the current environment.

“In a cyclical business like mortgages, as the market tightens, there always has been more competition for excellent lending officers,” Davis said.