Rising interest rates have led to a drastic drop in demand for home loans and refinancing, leading to a wave of layoffs in the mortgage divisions of some of the nation’s largest banks, including JPMorgan Chase and Wells Fargo.

But the cyclical nature of the mortgage industry doesn’t mean lenders should be forced to respond with massive hiring or layoffs as demand for mortgages fluctuates, said Suzanne Ross, director of mortgage products at Ocrolus, which automates document processing for fintechs. and banks.

“Staffing just for volume fluctuation can be costly and damaging to these institutions,” Ross said. “It doesn’t have to be as it has been historically, where humans were the only option for decision-making and some of the rote tasks that needed to be done on a mortgage. There are so many different options to help break this cycle.

Incorporating automation into the mortgage process, such as review and approval, loan origination, document sorting and income calculation, could help lenders escape the cycle, analysts say.

“To help avoid these boom and bust cycles, lenders need to understand how the combination of human and digital engagement at different parts of the process can be optimized to help reduce costs and improve efficiency,” said said Craig Martin, Executive Managing Director and Global Head. of wealth and loan intelligence at JD Power.

Break the cycle

Volatility in the mortgage industry is nothing new, Ross said, adding that home loan application volumes have fluctuated dramatically over the past two decades.

Banks’ reliance on staffing during peaks and reducing roles during low-volume years, however, is something she’s surprised lenders continue to do.

“It’s amazing to me that we keep going through this cycle over and over again,” Ross said. “If you look at a bar chart from 2000 to today, it looks like the best roller coaster ever in terms of the peaks and valleys in volume that are happening. Anyone who is currently suffering from this quite suddenly volume drop is forced to make redundancies. But the question becomes: ‘How do we stop the cycle now, move on?’ »

Mortgage applications are at their lowest level since 2000, according to data released this week by the Mortgage Bankers Association.

“Mortgage applications remained at a 22-year low, held back by significantly reduced refinance demand and weak homebuying activity,” said Joel Kan, associate vice president of economic and industry forecasts. of the MBA, in a press release.

The buy index was down 21% from the comparable 2021 period and refinances were down 83% from a year ago, the MBA reported.

“Mortgage rates rose across all loan types last week, with the benchmark 30-year fixed rate jumping 20 basis points to 5.65%, the highest in nearly a month,” said Kan.

The market is not expected to rebound anytime soon as the Federal Reserve continues to raise interest rates to curb soaring inflation. The sharp rise in rates is hurting demand for loan refinance, as homeowners have no incentive to change their current payment structure.

“Changes in interest rates can create immense volatility and require major personnel changes in a short period of time,” Martin said.

USAA, an insurance and financial services company based in San Antonio cut 90 jobs in its mortgage branch in March amid projections of a 34% decline to some 25,000 home loans.

Wells Fargo has also launched at least two rounds of job cuts related to home loans this year.

The San Francisco-based bank eliminated an undisclosed number of positions in its home loan unit in April a week after reporting a 33% decline in origination volume. Chief Financial Officer Mark Santomassimo called it the biggest quarterly decline in mortgage volume since 2003.

A second round of layoffs affected 107 Iowa-based workers in the Des Moines-based bank’s home mortgage division under the Worker Adjustment and Retraining Act (WARN) opinions submitted in June.

JPMorgan Chase also saw layoffs in the mortgage division amid the sharp decline in demand for home loans and refinancing.

In June, the bank laid off hundreds of employees from its home loan division and reassigned hundreds more, Bloomberg reported.

The market downturn also hit non-bank mortgage specialists who responded with their own staffing adjustments.

Mortgage technology company Blend announced in April that it cut 200 posts company-wide, representing 10% of its total workforce.

And better.com is carrying out its fourth wave of job cuts since December, according to TechCrunch. The mortgage company has cut half of its workforce — or even more — since December, fast company reported.

“A Twilight Zone”

“The whole hiring and firing routine is a knee-jerk reaction,” Ross said. “I feel like the entire mortgage industry is in a twilight zone where history is repeating itself over and over again.”

As lenders seek to expand during the next boiling housing market, automation is the best option to avoid more mass layoffs, costly onboarding and costly mistakes that could result from job reassignment, said Ross.

Banks should consider signing bonuses and training and retaining new employees as costs that reduce the high profit volumes they might receive during hot market times, Ross said.

“When the volume goes down and those margins go down, they don’t have the free money that they had or should have had in a high volume environment,” she said. “They’re forced to just fire those employees, which also costs a lot of money in severance packages.”

Lenders also run the risk of accumulating costly mistakes made by employees absorbing tasks that were previously performed by someone who was made redundant, she said.

“This can create a greater amount of compliance and calculation errors. And it could cost thousands of dollars,” Ross said.

Banks that have made massive cuts to their mortgage divisions should complete automation of their workflow and eliminate some of the rote repetitive tasks of employees who have been furloughed, Ross said.

“That way, the remaining staff is still utilized in a way where [a lender] can hold them back,” Ross said. “Going forward, they can scale as volume increases, keeping those employees retained and morale high.”

Automation can also speed up the loan-granting process and keep banks competitive, said Michael Coar, CEO of document management service VirPack.

“Workflow and automation tools help staff navigate loans quickly, automating many steps, reducing closing time and reducing borrower ‘shopping’ time, helping to secure that your bank doesn’t lose the loans that are there for other lenders,” he said.

Banks that lose mortgage customers could also see a drop in the number of consumers using other offers, Martin said.

“While some downsizing is inevitable, not striking the right balance risks forcing consumers to purchase a mortgage elsewhere, increasing the risk that the consumer will shift the relationship to have all of their needs met elsewhere,” did he declare. “The need to cut costs in difficult times is unavoidable and although short-term business solvency is a necessity, cost-cutting measures can negatively impact key customers and damage long-term health. term of the business with the result of winning the battle and losing the war.”

Perch, a Toronto-based home-buying platform, has automated 65% of the mortgage broker’s process, said company CEO Alex Leduc.

“Layoffs in the mortgage industry are not cyclical, but rather structural to reflect the changing nature of their role,” he said, adding that automation has helped Perch free up staff to focus on what they do. add the most value: advising clients.

“In the long term, however, this should mean that the number of people employed in this sector primarily in administrative and operational positions is rendered redundant by automation,” Leduc said.

Companies considering the benefits of automation should consider implementing changes while mortgage lending volume is low, Ross said.

“Trying to implement the technology in a very high volume environment is difficult,” she said.