The carnage in the mortgage banking business intensified on Wednesday as Resource Bancshares Mortgage Group and Bank of America Corp. disclosed big cuts in their home-lending staffs.
Resource, of Columbia, S.C., said it would cut its workforce by 18%, or 242 people, joining a long list of home lenders that have fired employees as interest rates rose this year. The lender said most of the cuts would be in production-support jobs like underwriting, closing, and processing, and in administrative functions like legal and accounting.
Bank of America said it would eliminate 312 jobs in its mortgage subsidiary in addition to 720 cuts announced in September. A company spokesman said the unit plans to close a loan servicing center in Cypress, Calif., and a retail sales service center in Tampa Bay, Fla., by March as part of an effort to become more efficient. He said the workers would be offered jobs elsewhere in the company.
News of the layoffs came as the Mortgage Bankers Association announced its seasonally adjusted loan application index fell 6.9% in the week ending Nov. 26.
"I'm not aware of anyone who is not downsizing. If a company is not downsizing I think they're getting ready to do a going-out-of-business sale," said Christopher J. Sumner, president of the Mortgage Bankers Association and president and chief executive officer of CrossLand Mortgage Corp., Salt Lake City.
The level of applications was off 46.7% from the same week in 1998. Refinancing activity, which propelled the industry to record loan volume last year, continued to drop - to 22.5% of total applications, from 23.2% the week earlier. Potentially cutting further into demand for loans, rates for 30-year fixed mortgages jumped to 7.88%, from 7.76% the previous week, the MBA said.
Wednesday's cut was the first major round of layoffs of full-time employees at Resource, a top-30 originator of residential mortgages, in a year in which most mortgage companies have downsized. Since January, Countrywide Credit Industries, the largest independent home lender, has cut its retail production division by 20% and its wholesale division by 35%.
With industrywide application volumes down nearly 50% from where they were a year ago, most lenders are trying to keep their operations afloat through staff reductions.
"We quite frankly delayed this as long as we were able to," said Resource's chief financial officer, Steven F. Herbert.
Mr. Herbert said Resource made a small cut in its staff, eliminating fewer than 50 positions, about 45 days ago. The company avoided a major cut until now, he said, because it has fewer fixed costs than other mortgage companies. The company has no brick-and-mortar retail branches; instead, it gets its loans from brokers and correspondents. That is how it was able to cut expenses earlier in the year by eliminating temps and overtime and through attrition.
But the company lost $1.7 million in the third quarter, compared to a $13 million profit in the comparable period last year. Resource's loan volume is off 60%, and its margins have shrunk, the result of intense price competition for the business that is left.
"We've done everything we can to get production back and to protect our employees," Mr. Herbert said. "There's no reason to think volumes are going to go back up. We've got more people than we need. What are you gonna do?"
Resource said it would close branches in 12 cities and consolidate its conventional-loan wholesale branches into six regional centers.
Mr. Herbert said Resource expects to take a $3.5 million charge in the fourth quarter to pay for severances and lease terminations. But it said the planned staff reductions would save it $4 million in expenses per quarter, beginning in the first quarter, he said.
With mortgage volume off about 40% from last year, CrossLand also has had to reduce its staff by about 15%, Mr. Sumner said.
With higher interest rates snuffing out volume and refinance volumes dead, Mr. Sumner said that hiring practices have "definitely followed the yield curve." What's more, he expects further layoffs in the industry because "there is a lot of overcapacity and a lot of suicidal pricing that is going to undo a lot of companies."
Management executives say that the downturn in mortgage rates and the resulting reduction in volume have forced mortgage companies to re-engineer their businesses.
Resource's downsizing of its wholesale operations is a reflection of the industrywide trend of examining "marginal profitability in channel by channel," said Brad Hollingsworth, chairman of Corporate Management Advisors Inc., an executive search and consulting firm in Altamonte Springs, Fla.
The downturn in refinancing business has caused major lenders to search for ways to "cut costs out of any origination process," including interacting with consumers more effectively, increasing the use of automated underwriting systems, shortening the underwriting cycle and processing time, and reducing handling costs, Mr. Hollingsworth said.
The re-engineering process has led to "modernizing," he said. He noted how companies are "re-tooling and initiating better practices" with hires from other industries that can help reduce the cost of originations.
"The best practices that you find in a manufacturing process are now being implemented in mortgage banking," Mr. Hollingsworth said. Some clients, he said, are looking at executives from Federal Express, United Parcel Service, as well as pharmaceutical and telecommunication firms to aid in this process.
Most of Resource's wholesale account representatives kept their jobs, Mr. Herbert said, although some of them will now work from their homes, shipping their loan files to the regional centers.