Credit Unions, Banks Share Mortgage Pains

Layoffs in mortgage departments of credit unions have been mirroring those in banks and other corporate lenders as volume has plummeted this year.

On Friday, the Mortgage Brokers Association reported losses among corporate mortgage originators are widening as Americans are buying fewer homes and fast-rising interest rates have choked off the refinance market.

The MBA’s Quarterly Mortgage Bankers Performance Report found that independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $624 on each loan they originated in the third quarter of 2022, widening from a reported loss of $82 per loan in the second quarter.

Marina Walsh, the MBA’s vice president of industry analysis, said many of the companies are responding by cutting staff.

“The number of production employees per firm is down 7% from the previous quarter and 19% from one year ago,” Walsh said. “However, overall volume has dropped so swiftly that some companies are having difficulties adjusting staffing and other costs to match market conditions.”

Credit unions haven’t been immune, with layoffs occurring including at the nation’s third largest credit union, PenFed Credit Union of Tysons, Va. ($35.9 billion in assets, 2.8 million members as of Sept. 30).

CU Times reported Wednesday based on multiple sources, including current and former employees, that PenFed has laid off 200 to 600 people in the past two months. The layoffs appeared to focus on lending department employees who worked remotely across the country.

Greenstate Credit Union of North Liberty, Iowa ($11.2 billion in assets, 395886 members) announced in September that it had laid off 42 employees because of “market corrections and rising interest rates.” Most of the labor cuts occurred in GreenState’s mortgage lending or commercial banking operations.

Collins Community Credit Union in Cedar Rapids, Iowa ($1.6 billion in assets, 91,034 members) announced in October it had laid off 38 employees because of declining consumer demand for mortgage loans and refinancing.

PenFed originations from automobiles to mortgages had been soaring for more than a year, but last summer PenFed President/CEO James Schenck warned second half volume would drop.

NCUA data for the three months ending Sept. 30 showed residential loan originations were $1.7 billion, down 62% from $4.4 billion in the third quarter of 2021 and down from $3.6 billion in this year’s second quarter. Non-real estate production was $1.4 billion, down 69% from $752.4 million in the third quarter of 2021 and down from $1.6 billion in this year’s second quarter.

PenFed’s net income was $37.5 million in the third quarter, or an annualized 0.41% return on average assets, down from 1.24% a year earlier and 1.04% in the second quarter.

The MBA’s report showed in more detail how the market has affected mortgage lenders in the for-profit world.

“The average pre-tax net production income per loan reached its lowest level since the inception of MBA’s report in 2008, which is sobering news given that the third quarter is historically the strongest quarter of the year,” Walsh said. “The industry continues to struggle with a perfect storm of lower production volume and revenues and escalating production costs, which for the first time exceed $11,000 per loan.”

With prepayments and delinquencies low, Walsh said mortgage servicing has been the difference for many companies between profitable or not. Roughly half of companies generated a profit in the third quarter; but without mortgage servicing operations, only a quarter of them would have been profitable.

Conditions for mortgage lenders worsened in October.

The National Association of Realtors reported Friday that existing homes sold at a seasonally adjusted annual rate (SAAR) of 4.43 million in October, down 5.9% from September and down 28% from a year earlier.

NAR Chief Economist Lawrence Yun said more potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher.

“The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years,” Yun said.

Still, inventory at the end of October was down 0.8% from both September and one year ago.

“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun said. “In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%.”

NAR reported that more than half of homes sold for at least $379,100 in October, up 6.6% from October 2021 as prices rose in all regions. This marked 128 consecutive months of year-over-year increases, the longest-running streak in NAR records.

New homes have been suffering too. The Census Bureau on Friday reported seasonally adjusted declines from September to October for single-family home building permits and construction starts. Both measures were down more than 20% from a year earlier.

The MBA reported Thursday that interest rates soaring past 7% cut sales for new homes in October to its slowest annualized pace since July 2022.

Joel Kan, the MBA’s deputy chief economist, said the average loan size decreased to $400,616, down 8% from its peak in April 2022. “The moderation in loan amounts is attributed to slower home-price growth and buyers stepping away from higher-priced homes,” Kan said.