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June 14th, 2013

Layoffs: The long-term effect of rising mortgage rates



Job MarketThere are short-term and long-term effects of rising mortgage rates. In recent weeks, the presence of 4 percent mortgage rates sent many to the sidelines. Weekly mortgage applications showed us that borrowers were waiting for rates to fall once more before they decided to move forward with their refinance or purchase.

That short-term shock is bound to wear off as borrowers realize that 4 percent mortgage rates aren’t the end of the world, and they are, in fact, still historically low.

But the true barometer of the long-term impact of rising rates will be layoffs. Eventually, rising rates will force banks to shed positions as there just won’t be enough work to go around.

We’re already seeing signs of this trend forming at banks across the country.

Layoffs announced

Last week, JP Morgan Chase announced the layoffs of approximately 1,800 people in their mortgage servicing unit. This layoff isn’t the declaration of the end of the nation’s longest refi boom or a recovering real estate market grinding to a halt. Instead, it’s a sign that the pool of new mortgage customers is much improved, reducing the number of delinquent borrowers banks have to deal with.

Years of stringent lending conditions have brought highly qualified borrowers through the door. CNBC reported that the bulk of JP Morgan’s recent layoffs have come from its mortgage servicing unit, which is responsible for collecting payments from delinquent borrowers. Fewer delinquencies have caused servicing units to shrink at banks nationwide, said CNBC.

Even Bank of America, who has been mired in bad loans since their acquisition of Countrywide in 2006, has seen their pool of delinquent loans shrink appreciably in the last year alone.

What’s ahead for mortgage rates?

Will mortgage rates ease again? Probably. Mortgage rates tend to rise much faster than they fall, leaving some room for them to tick back downward.

Rising rates will slow refinance activity, that’s just a fact. You can monitor weekly mortgage application numbers to get a short-term gauge of mortgage activity. But perhaps the best barometer of how rising mortgage rates are hurting activity over the long term will be job loss.

To what degree will this eventual job loss hurt the economy? That remains to be seen. When you see banks begin to seriously layoff mortgage employees, you’ll know rising rates have made their presence felt in the market.

3 Responses to “Layoffs: The long-term effect of rising mortgage rates”

  1. Definition of PMI Says: June 14th, 2013 at 12:10 pm

    So many mortgage companies are hiring and expanding like crazy right now, but it has the feel of late 2005 when everybody and their mother became real estate agents to take advantage of the housing boom. It should be interesting to see if the expansion soon turns into layoffs. Refinances are the bread and butter of most lenders today, so who are they going to refinance if rates don’t go back down again?

  2. Tim Manni Says: June 18th, 2013 at 10:46 am

    PMI: Thanks for the comment. I think rates have been so low for so long that the number of potential refinancers out there is so few. Only rates continue to fall will there be new opportunities for lenders to keep refinancing. -Tim

  3. jmav29 Says: June 20th, 2013 at 9:49 pm

    I think lenders have significantly overestimated the health of housing. .75% to 1% rated hikes in a month are first off going to put a screaching halt to refinances and push many homebuyers out of the market. $150 more a month for a $250,000 mortgage is an additional $54,000 over the lifetime of a loan. it will certainly have a devastating impact on potential buyers. The economy is improving…its not there yet so putting the screws to “joe average home buyer” is not the right thing to do right now.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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