By David Henry
NEW YORK (Reuters) - With mortgage applications falling to their lowest since late-2014, the U.S. home lending industry is facing a major overhaul in how it works and manages staffing levels.
Call-center employees who handle customer refinance requests are the most vulnerable as rates have started to climb, analysts said.
Those applications have fallen to their lowest level since late 2000, according to a seasonally adjusted index by the Mortgage Bankers Association. Refinancing made up about 37 percent of mortgage originations in the first quarter of this year, down from 75 percent at its peak in 2012.
That decline has come as interest rates on most 30-year mortgages has climbed to 5.1 percent, the highest since February 2011.
Homeowners who have borrowed since then lack the opportunity to save money by refinancing.
"We're going to see people losing their jobs in this industry because of the loss of refinance business," said Joseph Murin, chairman of JJAM Financial Services LLC and a 46-year veteran of the mortgage business.
What's happening in the mortgage industry reflects a perennial financial industry trend of firing and rehiring thousands of employees in various businesses as revenue ebbs or flows.
During the 2007-2009 financial crisis, U.S. banks laid off mortgage workers as demand froze and they faced huge losses in the business. Soon after, bank executives found themselves hiring people to deal with delinquent loans and mortgage companies staffed up to refinance loans as interest rates fell.
This time, the decline in mortgage employees may be stickier because major lenders and their technology-enabled rivals, such as Quicken and loanDepot Inc, have tried to automate much more of the business.
The industry employs about 350,000 people, the same as in 2002, according to government labor data gathered by the MBA. Employment reached 500,000 at its peak during the housing bubble.
JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo (NYSE:WFC) & Co were the two largest U.S. mortgage lenders during the first six months of this year, representing 7 percent of the market, according to Inside Mortgage Finance. The two recently said they had cut 400 and 600 mortgage jobs, respectively.
Still, the industry is overstaffed, chief financial officers of the two banks said during earnings conference calls with analysts on Friday.
"There's excess capacity in the market right now," said JPMorgan CFO Marianne Lake. "It will clear itself over the course of the coming months."
High staffing levels, combined with the chill of rising interest rates on mortgage revenue, are bad for big banks' mortgage businesses, Moody's Investors Service said in a report on Wednesday.
In addition to Wells and JPMorgan, other large players include Bank of America Corp (NYSE:BAC) and regional lenders like U.S. Bancorp.
Newer mortgage companies may have the most to lose after gobbling up refinancing market share through competitive online offerings. But they have struggled to compete when providing initial loans to buy homes, experts said.
Originating new mortgages remains hard to digitize, involving not just notarizing signed documents, but relationships with real estate brokers on the ground. (http://reut.rs/21jMCEH)
Some privately held mortgage companies that relied on refinancing are unprofitable now, said Moody's credit analyst Warren Kornfeld.
"They just want revenue to cover their expense base," he said.