Mortgage layoffs erase past year’s headcount gains for nonbanks

The latest numbers for nonbank mortgage headcount show that layoffs and other reduction-in-force moves like voluntary buyouts have erased all the industry gains in the past year.

Combined estimates for the number of positions on mortgage banker and broker payrolls in May fell to 418,000 from a downwardly revised 425,200 the previous month, and 420,100 a year ago, according to the Bureau of Labor Statistics’ report Friday.

With broader employment numbers — which the BLS reports with less of a lag than the nonbank estimates — showing relative strength, laid-off mortgage professionals may find new posts outside the industry if they don’t enter areas within it that may grow due to higher rates, like servicing.

Overall job numbers for June were a little weaker than the previous month with the addition of 372,000 positions, but they outpaced expectations for a gain of 235,000, according to a daily report from Walt Schmidt, senior vice president of mortgage strategies at FHN Financial. Unemployment remained historically low at 3.6% in June.

The strength in the broader job market has been a mixed blessing for lenders. While it generally supports consumer spending, the accompanying rise of interest rates back to more normal levels has caused housing sentiment to weaken, particularly given the past two banner years when financing costs were exceptionally low. 

So long as unemployment stays low and inflation is high, the Federal Open Market Committee signaled in minutes released this week that it will likely keep raising short-term rates. That could create some potential funding challenges.

The Fed’s interest in further tightening has impacted some of the trading in the broader markets that influence mortgage rates. But that’s been counterbalanced by concerns about a potential recession, so much so that the recent runup in mortgage rates was partially reversed this week.

And one thing market prognosticators have begun to worry about is whether the net effect of the myriad factors driving the market could result in short-term rates being higher than longer ones, upsetting some funding and investment strategies.

While some flattening and slight inversion has occurred in the relationship between short and long-term Treasury bond yields that can be rate-indicative, recently the mortgage curve has been steep, Schmidt said.

“Even though the yield curve has been flat, you’ve been able get, say, 70 extra basis points by going out to the 30-year versus the 15-year [in mortgages],” he said in a recent interview.

A flat or inverted curve could add to mortgage lending challenges. Non-depositories often rely on short-term financing provided by banks to fund mortgage pipelines. Although lenders have been making more short-term adjustable-rate mortgages, most are still 30-year fixed products.

A healthy overall employment level that sustains the Fed’s current path in monetary policy may also curtail deposit activity, which could reduce bank purchases of mortgage-backed securities and put more upward pressure on rates.

“Our bank group doesn’t think deposits are going to go negative, rather than it will be positive even if it slows down, but not every financial institution shares that view,” said Schmidt. “Banks are large buyers of MBS, and if their deposit growth goes negative, there's less money to buy.”