Layoffs in credit union mortgage departments have mirrored layoffs at banks and other corporate lenders as volumes have declined this year.
On Friday, the Association of Mortgage Brokers reported losses among corporate mortgage originators are widening as Americans buy fewer homes and rapidly rising interest rates have stifled the refinancing market.
MBA’s Quarterly Mortgage Banker Performance Report found that independent mortgage banks (IMBs) and chartered bank mortgage subsidiaries reported a net loss of $624 on each loan they originated in the third quarter of 2022, up from a reported loss of $82 per loan in the quarter the second
Marina Walsh, MBA’s vice president of industry analysis, said many companies responded by cutting staff.
“The number of production workers per firm was down 7% from the previous quarter and 19% from a year ago,” Walsh said. “However, overall volumes have declined so rapidly that some companies are having difficulty adjusting staffing and other costs to match market conditions.”
Credit unions are not immune, with layoffs taking place including at the nation’s third-largest credit union, PenFed Credit Union of Tysons, Va. ($35.9 billion assets, 2.8 million members as of September 30).
CU time reported Wednesday based on multiple sources, including current and former employees, that PenFed has laid off 200 to 600 people in the past two months. The layoffs appear to be focused on the hiring of departmental staff who work remotely across the country.
Greenstate Credit Union of North Liberty, Iowa ($11.2 billion in assets, 395886 members) announced in September that it was laying off 42 employees due to “market corrections and interest rate hikes.” Most of the labor cuts occurred in GreenState’s mortgage lending or commercial banking operations.
Collins Community Credit Union in Cedar Rapids, Iowa ($1.6 billion in assets, 91,034 members) announced in October it had laid off 38 employees because of declining consumer demand for mortgage loans and refinancing.
PenFed originations from autos to mortgages have surged for more than a year, but last summer PenFed President/CEO James Schenck warned that second-half numbers would decline.
NCUA data for the three months ended September 30 showed home loan originations were $1.7 billion, down 62% from $4.4 billion in the third quarter of 2021 and down from $3.6 billion in the second quarter of this year. Non-real estate output was $1.4 billion, down 69% from $752.4 million in the third quarter of 2021 and down from $1.6 billion in the second quarter of this year.
PenFed’s net income was $37.5 million in the third quarter, or a 0.41% annualized return on average assets, down from 1.24% a year earlier and 1.04% in the second quarter.
The MBA report shows in more detail how the market has affected mortgage lenders in the for-profit world.
“Average pre-tax net disbursement income per loan reached its lowest level since the inception of the MBA report in 2008, which is sad news given that the third quarter is historically the strongest quarter of the year,” Walsh said. “The industry continues to struggle with the perfect storm of lower production volumes and yields and rising production costs, which for the first time exceeded $11,000 per loan.”
With low prepayments and arrears, Walsh says mortgage servicing has been the difference for many companies between being profitable or not. About half of the companies made a profit in the third quarter; but without mortgage servicing operations, only a quarter of them would be profitable.
Conditions for mortgage lenders worsened in October.
The National Association of Realtors reported Friday that existing homes sold at a seasonally adjusted annual rate (SAAR) of 4.43 million in October, down 5.9% from September and down 28% from a year earlier.
NAR Chief Economist Lawrence Yun said more potential homebuyers will be stuck with qualifying for a mortgage in October as mortgage rates rise higher.
“The impact is greater in expensive areas of the country and in markets that have seen significant home price increases in recent years,” Yun said.
However, inventories at the end of October were down 0.8% from September and a year ago.
“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun said. “In October, 24% of homes received more than the asking price. In contrast, homes that have been on the market for more than 120 days saw prices reduced by an average of 15.8%.
NAR reported that more than half of homes sold for at least $379,100 in October, up 6.6% from October 2021 when prices rose in all regions. This marks 128 consecutive months of year-over-year increases, the longest streak in NAR records.
New homes also suffer. The Census Bureau on Friday reported a seasonally adjusted decline from September to October for single-family home building permits and construction starts. Both measures are down more than 20% from the previous year.
The MBA reported Thursday that interest rates jumped past a 7% sales cut for new homes in October to the slowest annual rate since July 2022.
Joel Kan, MBA deputy chief economist, said the average loan size declined to $400,616, down 8% from its peak in April 2022. “The moderation in loan volume is due to slower home price growth and buyers shying away from higher prices. house,” said Kan.