- As the Federal Reserve tightens, mortgage rates have spiked at a record pace.
- From Wells Fargo to Blend, lenders and mortgage tech startups have laid off employees in recent weeks.
- Many tech companies, in particular, face rising rates for the first time.
A cryptic email arrived in the inboxes of Wells Fargo loan processors and managers working in the Des Moines, Iowa metro area on Thursday, April 21. The bank would be holding a meeting at 11 a.m. local time, and attendance was mandatory.
When they dialed into the conference call at the appointed time, the employees learned what so many in the mortgage market have begun to fear: Wells Fargo had eliminated their positions. An executive vice president, Mike Venable, offered a spiel that almost sounded like a recording to one person who was listening.
After about 30 minutes of speaking, Venable ended the call without taking questions. Some employees were told they could take the rest of the day off, logging it in their calendars as a “non-routine event,” said the person, who spoke to Insider on the condition of anonymity to preserve their relationships in the industry. Many would learn that May 12 would be their last workday, according to people briefed on the announcement.
To some, the layoffs weren’t a complete surprise, given that Wells Fargo’s loan pipeline had begun to dry up.
“I was prepared,” said the person. “If I am not getting constant work and my pipeline is slowing down, something is going on.”
Not everyone expected the announcement, however — nor was Wells Fargo alone. Last month, Michigan-based Flagstar Bank announced cuts this year affecting 20% of its mortgage staff, or 420 employees. Rocket Mortgage, also based in Michigan, plans to offer voluntary buyouts affecting 8% of the roughly 26,000-strong company.
But traditional lenders may get off easy compared with once-hot mortgage industry startups, which stand to bear the brunt of the pain, industry insiders said. These companies grew headcount to dizzying levels as the pandemic spurred a home-buying boom, and they’re suddenly reckoning with an unprecedented surge in mortgage rates and a slowing market.
The once high-flying startup Better has laid off thousands of employees this year, and Blend, another mortgage-related startup, has also made steep cuts as venture capital’s expectation of exponential growth confronts the reality of the mortgage cycle.
By comparison, Wells Fargo’s layoffs, which affected at least four other Wells Fargo locations, numbered in the hundreds, according to a person familiar with the matter as well as postings on job-search website The Layoff. Wells Fargo had earlier confirmed that layoffs in its home lending operation took place, but declined to comment on the scope of the cuts.
Seasoned industry veterans have come to expect the cyclicality of the credit markets — and the rapid pace at which lenders can grow and shrink. They remember the effect the Global Financial Crisis had on the mortgage industry, which employed nearly half a million people by the end of 2006 but was cut nearly in half by the end of 2009, according to Mortgage Daily, which tracks mortgage-market data.
Those who joined newer, tech-oriented online lenders during the pandemic had never faced a rising rate environment before, and they’ve been caught off guard by the magnitude and speed of rate rises spurred by a
effort to tame mounting inflation.
From the end of February to the end of April, the average rate for a 30-year, fixed rate mortgage in the US jumped more than 30%, according to weekly survey data from Freddie Mac.
‘These are big movements in a very, very big market’
April’s spike in rates followed a March rise that had previously shattered the record for four-week rate increases, according to Freddie Mac data.
The size and pace of rate increases “is unprecedented, certainly in modern history,” Tim Mayopoulos, the president of Blend, told Insider.
Prior to joining Blend, Mayopoulos spent nearly 10 years at Fannie Mae, where he ultimately served as president and CEO of the mortgage giant.
“These are big movements in a very, very big market,” Mayopoulos added. “It shouldn’t be surprising to any of us that everybody who’s touching this market is having to think about how to bring their cost structure in line with market realities.”
Although Blend doesn’t write home loans, its technology is used by major US lenders from Wells Fargo to U.S. Bank, so its fortunes are tied closely to theirs. Blend’s layoffs this spring affected roughly 200 people, many concentrated within Blend’s title insurance business.
Ahead of its IPO last July, Blend bought Title365, which has been particularly exposed to swings in refinance volumes, for more than $400 million.
While Mayopoulos said “the industrial rationale” for the Title365 acquisition was still valid, Blend executives understood at the time that “inevitably volumes will go up and down.”
“This wasn’t about people being poor performers or not being valued members of the team,” Mayopoulos said. “We just didn’t have as much business and therefore we couldn’t carry as many people.”
Coming into this year, the industry had staffed up a lot, and the most recent data shows employment continuing to rise in the sector. Seasonally adjusted data from the Bureau of Labor Statistics shows the number of people employed as mortgage and nonmortgage loan brokers increased more than 8 percent from March 2021 to February 2022.
Companies that went on a hiring spree when the market was favorable are now facing tough decisions.
“We are in a horrible market for mortgage origination,” Mike Nierenberg, CEO of New Residential, a mortgage
that owns a large mortgage originator Newrez, said on the company’s first-quarter earnings call. “It’s only going to get worse.”
In 2020, the company had been hiring 500 people a month, Nierenberg said, but it now has to adjust to a new market.
“We have made significant cuts,” Nierenberg said. “We don’t want to be those folks, but we need to get our business right-sized for the current environment and just move forward.”
Tech startups, meet rising rates
The layoffs across the industry may be particularly painful for those lured to the mortgage market by the performance of high-flying startups and other tech-oriented companies.
Tech-enabled firms with venture capital backing may have a tougher adjustment to the new climate than traditional lenders, said Nima Wedlake, principal at VC fund Thomvest, who has led the firm’s investments in Blend, LoanSnap and Maxwell.
“The venture-backed startup model is a little bit antithetical with the cyclical nature of mortgage or other credit markets,” Wedlake said.
Wedlake recently went to a conference mostly attended by smaller and more regional lenders to assess how they were handling rising rates and the inevitable layoffs that are expected to follow. He found that they were prepared for a slower market.
“While they all did exceptionally well in 2020 and 2021, they’ve all lived through these cycles before, so they were more accepting of the fact that this is the natural course of their industry,” he told Insider.
Nonetheless, loan officers at these tech-enabled companies may be in a worse spot compared to well-performing traditional loan officers.
Many tech-enabled startups focus on new workflows that turn a business that was traditionally relationship- and location-based into one that’s less personal and more regional for the sake of efficiency. While this may mean larger volume per loan officer, the technology means they may not have the same sort of book of business as a high-performing traditional loan officer.
That may mean there’s a silver lining for those mortgage employees who are being laid off from the more traditional lenders.
“There’s still an intense war for talent within mortgage for the highest-producing loan officer,” Wedlake said. “As the market shifts from refinance-oriented to purchase-oriented, the loan officers with local relationships and their own book of business are even more valuable to a lender.”
Rising rates are likely to spur more consolidation in the industry for both tech and legacy companies, as well-funded competitors may see an opportunity to pick up market share, Wedlake said. While it’s unclear what impact that will have on broader employment within mortgages, it does bode well for large lenders and the tech names that cater to them.
It’s also a good opportunity for real-estate-tech companies to purchase mortgage companies so that they can offer all the services in one spot, such as Redfin’s recent acquisition of Bay Equity Home Loans.
A case study in Better.com
Still, layoffs can be traumatic for employees, however well-telegraphed. Online lender Better has been the most visible example of what happens when a market downturn crashes into the lofty ambitions of a mortgage high-flyer.
In December, Better CEO Vishal Garg announced, over
the first in a series of mass layoffs that has whittled down the company to a shell of its former self. Better continued cutting staff into 2022 in a clumsy series of layoffs. The company did not respond to a request for comment for this story.,
For two Better loan officers who left the company at the end of last year, the experience soured them on the mortgage industry as a whole.
One of them had joined Better in the fall of 2020 from the hospitality industry, one of Better’s main recruiting pools as it hired 7,000 people during the pandemic. The other joined Better in February of 2021 after a career in sales, attracted to the promise of a well-paying, professional job and long-term stability.
“I truly believed Better would be the company I would be at for a few years at least,” the loan officer who joined Better in fall of 2020 said. The loan officer understood that the industry was cyclical in nature, but believed that Better’s rapid growth would insulate them from the worst of it.
Both ended up landing at a mortgage company called Lower, also doing business as Homeside Financial, after a short recruiting process that consisted of a single phone call with a recruiter.
They told Insider that dozens of Better employees were hired by Lower to work on their remote lending team.
Neither lasted long. One quit on his first day, after reading the fine print of his contract. The second quit a few weeks into the job, after hearing of some coworkers being let go.
Insider spoke with two other Better employees who went to Lower, only to be let go after working there for roughly a month. Those employees said they were told they were being let go because of market conditions. When one asked whether they were laid off or fired, they said they were told that it was a “layoff due to performance.”
A Lower spokesperson told Insider that these former Better employees were not laid off from the company, characterizing them as “involuntary separations” that were “based on individual fulfillment of role requirements.” Both of them applied for unemployment categorizing their exits as layoffs, and their unemployment requests are pending.
Three of the four former Lower employees who spoke to Insider have since left the mortgage industry, and two of them plan to never work in it again. The loan officer who joined Better in 2020 described the emotional toll it took, calling the experience “traumatizing.”
“After Lower, I halted any and all mortgage jobs that I was looking at,” the person said. ” I wasn’t going to go through that again.”