Mortgage lenders feeling big drop in business with end of refi boom [Detroit Free Press :: ]
(Detroit Free Press (MI) Via Acquire Media NewsEdge) April 20--Residential mortgage lending has been in a nosedive since the end of the refinancing boom last year, heralding leaner times for big Michigan-based lenders such as Quicken Loans and Flagstar Bank.
And this year's extreme winter hasn't help.
"People really didn't want to look at houses and people didn't really want snowy boots traipsing through their houses for sale," said Kim Alexander, president of the Michigan Mortgage Lenders Association.
Nationwide, lenders made $226 billion worth of mortgages in the first quarter, down 57% from the same period a year ago, when borrowers were lining up to refinance their home mortgages at ultra-low interest rates, according to data from the Mortgage Bankers Association.
The past quarter represented the smallest volume of U.S. mortgage originations since 1997, despite rates that are still low by historical standards -- about 4.3% last week for a 30-year fixed loan versus 3.4% a year ago. The problem is that most people in a position to refinance already have.
Mortgage lenders in Michigan and across the industry have responded to the market shift by laying off employees or retraining staff to do more mortgage purchases and fewer refinancings.
Yet there hasn't been enough new purchase activity to compensate for the expired refinancing bonanza, forcing the mortgage industry to make do with a smaller overall market.
Industry observers say that, with some exceptions, there have been fewer layoffs among smaller, locally-owned firms in Michigan that didn't expand to capture the gust of refinancing activity that represented about 75% of the nation's overall mortgage market in late 2012 and early 2013.
Bose George, a mortgage analyst with New York-based investment firm Keefe, Bruyette & Woods, said it was common for large lenders to ramp up hiring to take advantage of the refinancing boom.
But refinancing activity was falling by last summer and slid to under 50% of the mortgage market this past quarter. The Mortgage Bankers Association forecasts that it will average 39% for 2014 as interest rates continue their gradual rise.
Citing the industry-wide decline in mortgages, Troy-based Flagstar bank announced early this year it was trimming its workforce by 600 people from its September headcount. Industry figures show Flagstar was 8th in the U.S. last year for mortgage volume and had 3,253 employees. .
"The mortgage business has basically fallen off a cliff," Flagstar CEO Alessandro (Sandro) DiNello told the Free Press in January.
In earnings calls this month, executives of the nation's No. 1 and No. 2 mortgage lenders by volume, Wells Fargo and JP Morgan Chase, said they had cut 1,100 and 3,000 mortgage-selling jobs, respectively, during the first quarter as origination volumes plummeted 67% and 68% from the same period a year ago.
The headcount in JP Morgan's mortgage unit was down 14,000 people from January 2013 levels.
The slowdown appears to be affecting everyone. For privately held Quicken Loans of Detroit, the most recent industry figures show the online lender's volume of mortgage originations dropped by half to $12.5 billion in the fourth quarter of last year compared to the same period a year earlier, according to Inside Mortgage Finance Publications.
Industry statistics rank the company as No. 4 in total mortgage volume , although Quicken Loans considers itself the country's No. 2 "retail home lender" based on its own analysis that counts direct-to-consumer lending but not business done by underwriting mortgages made by brokers or credit unions.
Quicken Loans executives were not available for an interview. In an e-mail, Quicken's CEO Bill Emerson said his company runs a more nimble technology-driven business model than competitors and has grown the number of mortgages that it services for a fee. The online lender has not made any reductions to its workforce, Emerson said, which exceeds 9,000 people in Detroit and is still growing.
"Fluctuations in refinance volume are no surprise to anyone who has been in this industry for some time. However, instead of reacting to each increase or decrease in the market, we take a much different approach," Emerson wrote, responding to a question of how Quicken added jobs as competitors shed them.
"We are far more concerned with attracting and retaining talented, driven team members," he said.
Quicken Loans enjoyed an abundance of publicity this winter -- and potential sales leads -- by partnering with investment guru Warren Buffett to offer a $1-billion prize for a perfect NCAA tournament bracket. Although no one won the billion, the owners of the 20 closest brackets were offered $100,000 each for buying, remodeling or refinancing a home.
David Lykken, managing partner of Austin, Texas-based consulting firm Mortgage Banking Solutions, believes that every mortgage shop has had to make some adjustments in response to the plunge in mortgage activity.
He said Quicken Loans is highly regarded in the industry, but can't be immune to this latest downturn.
"Everyone has done some amount of laying off or downsizing," Lykken said. "They've done some trimming, but they've not had to trim as much as others."
Contact JC Reindl: 313-222-6631 or firstname.lastname@example.org. Follow him on Twitter @JCReindl.
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