The mortgage world has had to face harsh reality the last few years owing to market changes and cascading downturn caused by the pandemic. Major mortgage companies are adapting to the new business climate by taking up cost reducing initiatives. loanDepot, one of the mortgage giants, recently announced that it will be cutting down on jobs to reduce costs of operations. The company cited growing interest rates as the reason for its seismic downsizing. The company also warned that the market is in for some harsh realities going forward following the events of the coronavirus pandemic.
In a statement issued last Tuesday, loanDepot said it has already cut 3000 jobs this year, and a further 2000 more jobs will be affected at the end of the year. The california-based company mentioned that these cuts are part of a comprehensive plan to cut cost by around $400 million annually. Currently, the company boasts of around 8,500 employees.
In a statement detailing the strategy, CEO Frank Martell said: "After impressive volumes in the last 24 months, the market has shrunk dramatically and abruptly in 2022." The plan also involves lessened marketing and property sales to get back to historical levels of manpower and costs.
Patrick Flanagan, the company's CFO, stated that the company expects "difficult market circumstances" to persist into the new year, with similar companies and originations anticipated to drop by approximately 50% in 2021 compared to previous years and "increased" in the upcoming months.
The mortgage industry has suffered tremendous losses in the last few months. loanDepot is one of the leading mortgage organizations in the US. The company saw its shares fall by almost 90% percent in close comparison with a 20 percent fall by S&P 500.
The Federal Reserve's interest rate increases, which are intended to reduce decades-high inflation but also drive up the cost of debt, are starting to have an adverse effect on housing demand, which is why the company is having trouble. For example, the rate for a 30-year fixed mortgage has increased from 3.29% at the beginning of the year to 5.77%, adding hundreds of dollars to the monthly cost of new mortgages.
LoanDepot is not the only company that has taken the downsizing initiative. Other companies are following suit and looking for ways to bring down cost. The likes of JPMorgan and Wells Fargo have also dropped thousands of employees. In addition, real estate companies like Redfin and Companies have lost around 1000 employees.
According to Joel Kan of the Mortgage Bankers Association, rates are much higher than they were a year ago, which is why applications for house purchases and refinances are still low. "Continued affordability issues and limited inventory restrain purchase activity, and homeowners continue to face diminished incentives to submit refinancing applications."
As mortgage rates fell and more Americans began working from home, demand for homes increased during the epidemic. However, a reversal was swiftly sparked by the Fed's rate increases. Mortgage originations increased significantly between 2019 and 2020, from $2.3 trillion to more than $4 trillion, although demand has subsequently fallen to its lowest point in more than 20 years.