Large banks are announcing mass layoffs in their mortgage origination and servicing operations, and some are pointing to their own successes as the reason for the reductions. Industry onlookers say there are other reasons for the job cuts.
In August, Wells Fargo said it was laying off 2,300 employees from its home mortgage division. Bank of America said it was cutting 1,000 jobs in home loan fulfillment and consumer banking services. And JPMorgan Chase, which last year said it would reduce its workforce by 13,000 to 15,000, cut 1,100. In July, Citigroup, which slashed 11,000 jobs last December, closed a servicing unit in Illinois and laid off 120 workers.
The banks pointed to lower rates of refinancing and fewer delinquent mortgages as the reasons for the layoffs. According to the Mortgage Bankers Association (MBA), the delinquency rate decreased to a seasonally adjusted rate of 6.96% of all loans outstanding at the end of the second quarter of 2013. The MBA says this is the lowest level since mid-2008.
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That hints at an improved economy, but there is more to the story, says Frank T. Pallotta, managing partner at Rumson, N.J.-based Loan Value Group. The number of foreclosures slowed down over the last couple of years because banks were responding to the National Mortgage Settlement.
‘The state attorney generals were telling the largest five servicers, 'We are penalizing you for the job you did, and you have to pay for your errors of the past and fix your operations,'’ Pallotta says.
The settlement required JPMorgan Chase, Citigroup, Wells Fargo, Bank of America Corp. and ResCap (formerly Ally Financial) to dedicate a total of $20 billion to principal reduction, refinancing and other forms of relief. ‘What they did is they stopped the presses,’ Pallotta says. ‘They stopped foreclosures, and they stopped their aggressive collection measures. Foreclosures are down because banks had to fix what was broken.’
That will change. ‘There are millions of borrowers that haven't made a mortgage payment in a year,’ he says. ‘You are going to start to see in the next 18 months a pickup in the number of people hired in the servicing side, as foreclosures ramp up.’
Also according to the MBA, for the week ending August 30, 2013, mortgage applications increased 1.3% from one week earlier. Refinancing increased to 61% of total applications, from 60% the previous week. A few months ago, it was closer to 70%.
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Dustin Hobbs, communications director for the California Mortgage Bankers Association, says some banks are reducing staff for other reasons, such as impending regulations. ‘A lot of banks, in an atmosphere of heightened regulation and scrutiny, look to reduce risk,’ he says. ‘They are shoring up their assets and balance sheets, selling mortgage servicing rights, and reducing their exposure.’
Meanwhile, Hobbs says, nonbanks are adding staff. Not all the unemployed will find jobs, though. ‘The hallmark of nonbanks is that they are more lean and efficient than larger banks or larger companies. Nonbank servicers are more focused and more efficient as far as personnel,’ he says.
Hobbs adds that he is still seeing hiring on the mortgage origination side of the business. The servicing side, he says, is being reduced, but that's after a huge wave of hiring.
‘There was so much hiring in the last couple years to deal with the volume in default and foreclosures. For banks and servicers, it got to the point that all they could do was throw people at the problem. They needed people to talk to borrowers.’
According to the U.S. Bureau of Labor Statistics (BLS), hiring and firing in this sector has fluctuated. For the category of Financial Activities, Real Estate Credit, there were 225,800 employees in 2008. The number is an average for the year, as the number steadily decreased from 239,900 in January to 208,800 in December. Then the number of workers in this sector plummeted to 200,000 for 2009, and went up again steadily until there were 214,000 in May 2013, the most recent month the BLS has numbers available.
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One detail that does not seem to be coming up in the layoff news is offshoring. Ocwen Financial Corp. reportedly has thousands of employees in India and Uruguay, according to the Wall Street Journal, and Bank of America opened an appraisal unit in Bangalore, India.
Dustin Owen, regional sales manager for Waterstone Mortgage Corp. in Winter Park, Fla., says that's not the culprit. ‘I do see servicing going overseas, but the layoffs we are seeing are in mortgage processing, underwriting and closing,’ he says.
Meanwhile, Waterstone is opening an operations center that will hire 10 to 20 initially and plans to have a staff of 30 in 18 months. That means Waterstone will compete with other nonbank servicers to hire some laid-off workers, but not all of them. ‘In Orlando, we are competing for the super-talented,’ Owen says. ‘We will go through resumes that are the most impressive, then less impressive, and then there will be others who do not get a phone call.’
Nora Caley is a Denver-based freelance writer.