Op-Ed: With Layoffs Left and Right, is a Mortgage Lender Crisis on The Horizon?

Share News:

By Ryan Casey Stephens,  FPQP®
Special Contribut
or

Drive past the Legacy Place West building in Plano and you’ll notice a few more open parking spaces. What was a bustling business hub now hosts only a sparse number of true Texans strategically sheltered under a few shade trees. This was where First Guaranty Mortgage’s offices were located.

You’ve likely read that First Guaranty Mortgage recently laid off most of its employees and days later filed for bankruptcy. This scene is becoming familiar as some of the most successful mortgage companies of the last two years continue to lay off employees at a pace not seen in quite some time. Should we be concerned?

Many readers will remember when names like Bear Stearns, Countrywide, and Washington Mutual shut their doors. You’re likely wondering if this is just the beginning of something equally sinister.

Spoiler alert: I don’t think this is cause for alarm.

With inflation soaring, stocks tumbling, crypto crashing, and gas worth its weight in gold, it’s natural to try and connect the dots. As an insider to all of this myself, I don’t believe this is the beginning of something dark. This is simply another shift in the ever-changing mortgage industry.

They Don’t Work Like They Used to

We need to recognize that mortgage companies don’t work as they did in 2007. Back when the iPhone was launching and YouTube was still in the early adoption stage, loan officers hustled to find leads through their referral partners, cold calling, and mail campaigns. If business was coming in the door, a company had its loan officers to thank for it.

That changed dramatically as lenders learned to capture billions of dollars each year from online leads. A new call center model emerged, and those who adapted such as Quicken grew to a monstrous size with eye-watering speed.

However, the core components of the mortgage company remained unchanged. Processors, underwriters, and closers still took the new business from start to finish, so businesses needed to hire scores more of those staff. The most noticeable change was that many loan officers no longer hit the street but instead sat behind a desk taking endless calls from online leads searching for the next low rate.

The model reached its climax last year with the availability of the lowest rates in America’s history. For perspective, the top volume company in the United States over the last two years was United Wholesale Mortgage. In 2020 they closed $107.7 billion in volume. But by the end of 2021, that volume jumped to a staggering $182.5 billion in closed loans, a nearly 70 percent increase in just 12 months. At one point last year, refinance transactions made up nearly 80 percent of all mortgage business on top of a very strong purchase market.

All Good Things Must Come to an End

Now we’re experiencing that old cliché: “All good things must come to an end.”

This week, the Mortgage Bankers Association revealed that refinances are down 80 percent year over year. Purchase applications are also down 24 percent from this time last year, and coupled with rates not seen since 2007, the trend here appears to provide us an answer.

Simply put, there’s just not a lot of business to go around. The first to go are likely the most recently hired underwriters who no longer warranted one of the higher-salaried positions in the industry. Close behind were low-rated and low-producing call center loan officers, along with the processors that helped them collect documents. I’m certain some regional management have been fluff to trim off too, especially those not in a position to produce new business. When there’s not much out to be gleaned, it’s time to get lean. 

Is The End in Sight?

All that is left to be seen now is where this all ends.

Dallas and Fort Worth’s markets appear to remain a real estate safe haven. Multiple offers over list price persist here despite the lower volume of purchase and refinance applications. Thanks to our high relocation volume, our livability, and amenities, it’s hard to imagine even this economy changing our region for the worst.

Instead, I think it’s best to see these layoffs for what they really are. Not some sort of canary in the coal mine, but a natural business shift given the sudden change in the mortgage landscape.


Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].

Posted in

CandysDirt.com welcomes articles and op-eds from our readers and brand partners. Think you have a great story to tell? Send us a note at [email protected].

2 Comments

  1. Jerrimy Farris on July 5, 2022 at 12:35 pm

    Nice article. Good insight on an angle I didn’t consider.

    • Joanna England on July 6, 2022 at 10:45 am

      Very enlightening!

Leave a Comment