More than 100,000 jobs may well be lost from the US mortgage industry/Domino effect leads to huge job cuts

More than 100,000 jobs may well be lost from the US mortgage industry
By David Wighton in New York
Copyright The Financial Times Limited 2007
Published: September 12 2007 03:00 | Last updated: September 12 2007 03:00


More than 100,000 jobs may well be lost from the US mortgage industry in the next few months as the turmoil in the credit markets begins to bite.

Industry experts predict that lenders and brokers will cut at least 20 per cent of their headcount as volumes look set to fall more than 25 per cent next year.

"It could be considerably more," said Guy Cecala, of Inside Mortgage Finance. "The boom brought tons and tons of people into the business, which has been carrying excess weight for several years."

US Department of Labor figures show that 457,000 people were employed in real estate credit and mortgage broking in July - 174,000 more than in the same month in 2000. But officials say this significantly understates the number of jobs directly affected by mortgage volumes.

It takes no account of jobs in areas such as mortgage insurance or investment banks' mortgage securitisation businesses.

Although investment banks such as Lehman Brothers have cut jobs in the mortgage origination arms, they are cautious about cutting bankers and traders. But senior executives admit that if market conditions persist, cuts are inevitable - particularly in securitisation.

The turmoil in the mortgage market was putting more pressure on the US housing market, the National Association of Realtors said yesterday. It forecast that existing home sales would fall 8.6 per cent this year, down from its 6.8 per cent prediction a month ago. New home sales are forecast to tumble 24 per cent, after an 18 per cent fall last year.

There were nearly 80,000 announced job cuts in August, up 85 per cent on July, according to Challenger, Gray & Christmas, the outplacement consultants. Financial companies announced nearly 36,000 job losses in August, the highest since 1993. Most were in mortgage lending.

The financial sector has announced 103,000 cuts in 2007 and is on court to outdo the high of 117,000 in the recession 2001.

"There were early warning signs in April as a few major subprime lenders went under and released workers. However, what had been a relatively small number of job cuts suddenly turned into a deluge in August as financial institutions shut down operations overnight," said John Challenger, chief executive.

The August data do not include the 12,000 job cuts announced last week by Countrywide Financial, the largest mortgage lender in the US. The cuts amount to 20 per cent of its headcount.



Domino effect leads to huge job cuts
By David Wighton
Copyright The Financial Times Limited 2007
Published: September 12 2007 03:00 | Last updated: September 12 2007 03:00
Forecasts of the medium- term impact of the credit market turmoil vary wildly.

But even the optimists agree that one thing appears inevitable - huge job losses in the US mortgage industry.

Mortgage volumes have already fallen sharply and industry forecasts predict that they will fall below $2,000bn next year, down by a third on last year and half the peak recorded in 2003.

Countrywide Financial, the largest US mortgage lender, last week announced plans to cut 12,000 jobs, or 20 per cent of its workforce, in the next few months.

Guy Cecala, of Inside Mortgage Finance, said that, on a conservative view, it was likely that the cuts across the industry would be at least as deep.

"It could be considerably more. My personal feeling is that this is just the first run of cuts and that people are making cuts now with a view to seeing what happens. Countrywide could easily cut another 10,000 in the fourth quarter."

A cut of 20 per cent would mean about 100,000 job losses from an industry headcount of about 457,000 in July, according to US Department of Labor figures.

But these figures significantly understate the total number of jobs tied to the US mortgage market.

For example, they do not include jobs in mortgage insurance, where cuts are already being made. Nor do they include thousands of highly paid jobs in the mortgage securitisation departments of the investment banks.

Lehman Brothers has announced about 2,000 mortgage job losses, including the closure of its subprime mortgage business. These relate to originating mortgages not securitisation.

But cuts in securitisation staff at the investment banks appear inevitable given the collapse of the subprime market that fuelled its growth in recent years.

Beyond the jobs tied directly to mortgages, there are millions linked to the residential property market that is being given another kick by the turmoil in the mortgage market.

For the mortgage industry itself, a cut of 20 per cent looks modest in the context of the extraordinary growth that the industry has seen over the last 10 years. According to the US Bureau of Labor Statistics, there were 323,000 people working in US real estate credit in July, a rise of 70 per cent over 10 years.

For mortgage loan brokers, the growth has been even stronger with the figure rising almost 160 per cent to 134,000 since 1997.

"There is no question that there are too many people in the mortgage business," says Mr Cecala. "The boom brought everybody and his dog into the industry."

The strongest growth came between 2001 and 2004 after the Federal Reserve aggressively cut interest rates in the wake of the dotcom bubble burst.

This was bonanza for the mortgage industry as homeowners refinanced their loans at lower rates and extracted cash from their appreciating properties with home equity loans.

Although mortgage volumes peaked in 2003, job numbers stayed fairly stable as the industry made its ill-judged expansion into subprime lending.

Subprime loans to people with weaker credit histories are more labour-intensive than standard loans and are more profitable (at least initially), justifying high staff numbers.

But it is precisely these types of loans that have disappeared and are unlikely ever to return to the levels seen in recent years.

For the foreseeable future, mortgages will revert to being a largely commodity business focused on standard loans that can be sold on to Fannie Mae and Freddie Mac, the government-sponsored mortgage investment giants.

And as Mr Cecala says: "You don't need a lot of people in a commodity business."