The mortgage staffing outlook by loan channel and lender type

June 14, 2022 4:25 PM

The transition away from an unusually long period of historically low rates this year suggests that new consumer demands could in some cases reroute the employment needs of the disparate players in the mortgage industry.

Many experts expect that a different cohort of mortgage-related entities will be most active when rates rise, though there are several nuances and countercurrents to these trends.

Some, for example, expect to see differences in the way banks and nonbanks fund their loans and are regulated, potentially putting the former on relatively firmer financial footing. Others think banks could be more opportunistic given the broader range of financial services they offer, and that could result in a countertrend in which non-depositories recruit mortgage professionals from depositories.

Many mortgage executives suggest consumer direct could be hit by more layoffs if refinancing continues to drop, and they see business shifting more to traditional retail and third-party origination channels that tend to do better in a purchase market.

All this likely means that top purchase-oriented sales professionals from nonbanks will stay employed in a mortgage market that appears to be poised to contract overall. Housing finance firms will need to find creative ways to limit layoffs in a scenario where rates keep rising or economic woes and refi burnout limit business.

From recruiting opportunities in various loan channels and types of institutions, to an esoteric mortgage niche that nonbanks have used for retention, what follows are some ways companies in the housing finance business are coping with staffing challenges in an unpredictable interest-rate environment.

Nonbank consumer-direct

Companies that leaned heavily or solely on call center originations, which historically perform best in a low rate environment, are broadly considered most likely to have an outflow of staff even though they do operate on thin margins that could be attractive given the business’ high costs.

“I think generally large, direct-to-consumer channels that might have had higher refinance business have probably been impacted a little bit harder across the industry,” said Steve Adamo, president of national retail production at nonbank Embrace Home Loans, in an interview.

To be sure, if direct channels have developed an effective purchase lending strategy, they could bear up well, but generally these channels have not performed as well as traditional retail when refinances ebb.

“If you were, say, a direct lender, relying on refinances and a technology platform, you may not be in such great shape, but if you're using technology in conjunction with your purchase strategy, you're probably in pretty good shape,” said Paul Buege, CEO of Inlanta, a Midwest nonbank, in an interview.

In general, nonbanks and banks will prioritize the retention and recruiting of top or near-top producers of home purchase loans in retail, with less interest in call-center staff handling refis, or operations professionals like processors or underwriters, though there will be some exceptions.

Underwriters familiar with Federal Housing Administration-insured loans are expected to remain in demand, as forecast in a 2021 Arizent survey asking lenders to anticipate some of the trends they might encounter this year.

“The FHA underwriter is still very specialized and sought after. Increasingly, no underwriter just underwrites a particular product. We want underwriters to be multifaceted in their abilities,” said Buege.

Bank and nonbank retail

Expert opinions vary regarding the degree of cross-pollination between depository and nonbank retail expected and where layoffs will be concentrated.

Initially, the outflows may be primarily from nonbanks because as a group they tend to be more exposed to monoline consumer-direct, refi-centric operations, while banks are generally lending through different channels and offering a wider variety of financial services, said Chuck Meier, senior vice president and mortgage sales director at Sunrise Banks, in an interview.

“You're going to get a big, big shift and big attrition in the nonbanks that primarily rely on the Internet,” Meier added.

However, Buege thinks a group of nonbanks will fare well and end up potentially recruiting from depositories down the road, in situations where top producers are willing to cross over to a new regulatory environment and culture. That also becomes more likely if banks forgo the mortgage business for other business lines that appear more attractive.

“I would say that while a lot of analysts look at nonbank and say that we’re going to be stung or hurt by the declining market, I think … we have to look at the fact that nonbanks originated over 70% of all mortgages last year, and that's both purchases and refis. So, within that giant population of lenders, there are some like us that will fare quite well,” said Buege.

However, to date the mortgage business still holds some promise for banks, and they may be in a better position to support it than monoline nonbanks if rates keep rising because they could have more opportunities for growth.

“They're still making some money on mortgages, and some money's better than no money,” Meier said, noting that banks work to retain their sales teams by putting that money back into marketing.

Bank correspondent purchases of high-balance agency loans

Bank demand is going up for loans made above the standard limit for loans bought by two government-sponsored enterprises, but within the size allowed for certain high cost areas and that could build business and sustain some retention for nonbanks.

The private secondary-market execution tends to be competitive with sales to the GSEs in this area, and banks have shown interest in buying these on a correspondent basis from nonbank retail in cases where delivery is more efficient through third-party originations.

“Are they buying whole loans from the independent mortgage banks because they can deliver better? I would like to think that's true,” said Adamo. “We have a market that could be going from just about $4 trillion a year to $2.5 trillion. Less volume means less people to manufacture that volume. So I think everybody's making prudent decisions to right-size their business model.”

Bank and nonbank outsourcing

Nonbanks have typically been heavier users of mortgage outsourcing and technology, but banks might become a little more active in both as cost and competitive pressures mount and non-depositories decrease the amount of business they need help processing.

“Banks are getting more receptive to concepts like offshore,” said Rajul Sood, global head of commercial and retail lending solutions at Acuity Knowledge Partners. “Nonbanks are already very innovative. So they've been coming to offshore providers because typically they want the benefit of flexible models.”

Transitions from the U.S. mortgage business into outsourcing or offshoring is limited, but Sood expects Acuity could see incremental growth in numbers of sales professionals who consider onshore jobs with her company if home lending continues to trend downward.

“We definitely have a lot of interest coming from ex-mortgage bankers,” she said.