The slump in home loan refinancings has forced many lenders to cut back on staff, and layoffs are continuing throughout the industry.
But lenders are also finding that decisions on who should stay and who should go are difficult from both human and business standpoints.
Ed Furash, a Washington, D.C.-based consultant, estimated that the mortgage industry would trim one-third of its employees this year. Deciding which departments to cut is becoming an extremely difficult task, he said.
Most major companies are well on their way to reaching that one-third figure.
In April alone, Countrywide Credit Industries cut 363 loan-production jobs, or 14.2% of its production staff. Last month, the home loan unit of Prudential Insurance Company of America was preparing to lay off nearly 600 people, 12% of its employees. And many other companies have directly or indirectly announced staff cuts.
As the cuts get deeper, the question for many lenders is which staffers to cut next and in what sectors of business.
Deciding where to cut staff involves shooting at "a moving target" because of constant changes in the market, said Norman Anderson, senior vice president of Directors Mortgage Loan Corp., Riverside, Calif.
Richard C. West, senior vice president of Union Bank, San Diego, said the volatile market, with the prospect that business could rebound, forces a lender to hesitate - perhaps too long - before laying people off.
Executives at Plaza Home Mortgage Bank, Santa Ana, Calif., which has had three to four waves of staff reductions since January, evaluate monthly where to cut staff and by how much, said Brenda Lynn, executive vice president.
Nancy Boles, senior vice president, Arbor National Mortgage Inc., Westbury, N.Y., said the lender has guidelines for reducing its work force.
Looking First to Attrition
Arbor tries to rely on attrition. When that's not enough, employees are laid off starting with those that have the least expertise. Administrative employees come first.
The lender also considers what businesses are hot before firing employees. The Arbor division that handles financing for multifamily housing, for example, is hiring. That's because "there is a lot of activity there," said Ms. Boles.
Mr. Furash, the consultant, recommended studying which markets are headed toward long-term declines and which are merely experiencing short-term market changes. Understanding interest rate cycles is also important, he said.
Lenders should be wary of laying off back-office workers without considering how secondary-market executives would respond to possible reductions in quality, he said.
Bigger lenders have the potential to buy high-end technology that can smooth out the hire-and-fire cycle, Mr. Furash added.
