The recent rise in mortgage rates has shut the refinance rush down to a trickle and led mortgage companies to start slashing jobs.
The latest bloodletting occurred Tuesday, when Seattle-based Washington Mutual said it would cope with the slowdown in mortgage applications by cutting 2,900 positions before the end of the first quarter.
That’s on top of 4,500 jobs — mostly temporary and contract positions — that the company cut between August and November, Washington Mutual spokesman Alan Gulick said.
Nationally, Washington Mutual employs about 60,000 people.
The Mortgage Bankers Association of America estimates that $3.36 trillion in mortgages will be closed this year. That number will decline to $1.65 trillion in 2004.
Refinancing will account for about 28 percent of the total next year, down from 66 percent this year.
“The refi component of our business is counter-cyclical to the rest of the economy. Bad news in the economy is good news for (mortgage) rates,” said Greg Osborne, chairman of the Colorado Mortgage Lenders Association.
“As economic indicators point to a sustained recovery, people are going to have excess capacity and are going to have to decrease employment.”
Interest on a 30-year, fixed-rate mortgage has been hovering below 6 percent, up from a low of 5.21 in mid-June, according to mortgage buyer Freddie Mac. Rates have fallen a bit further in recent days.
Refinancing has slowed
While rates remain relatively low, the higher rates have choked off refinance activity.
But when homeowners were frantically refinancing to take advantage of historic lows, mortgage companies picked up temporary workers to meet the demand.
Now, those workers are the first to be let go.
Calabasas, Calif.-based Countrywide Home Loans has cut 5.6 percent of its work force, spokesman Rick Simon said.
Some companies have tried cutting back by not filling open positions.
Jay Wilson, Colorado manager for Cleveland-based National City Mortgage, said his work force has dwindled to about a dozen workers, from a height of 18 people earlier in the year.
Many of the departing workers were in commission-based positions and left when refinance business dried up, Wilson said.
“You might see some of the smaller companies go out of business,” said Bruce Alexander, president and CEO of Vectra Bank.
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Vectra employs about 75 people in its mortgage unit, which is down about 10 positions from earlier this year.
Doug Duncan, chief economist for the Mortgage Bankers Association in Washington, D.C., said large-scale layoffs haven’t yet begun because most companies are holding on to see if rates will drop again.
“We’ve only seen the early stages of layoffs at this point,” Duncan said. “They will certainly accelerate.”