Mortgage companies have been hit this year by fire, earthquake, a sudden and enormous surge in interest rates, a slump in loan demand, and a devastating price war.
Still, the publicly held companies kept announcing strong increases in mortgage originations each month compared with volume a year earlier.
Now even that last illusion of strength has disappeared in the blink of an eye. Last last week, the two largest independent residential lenders announced big drops in mortgage originations in April after many consecutive month of hefty gains.
Countrywide Pares Jobs
No. 1 Countrywide Credit Industries, based in Pasadena, Calif., reported a drop of 23% in April originations. In February and March, it has reported increases of 55% and 15%. The company also said it had eliminated some 363 loan-production jobs in April 1994 alone.
And on Friday, No. 2 North American Mortgage Co., Santa Rosa, Calif., said its originations fell by about 28% in April. For March, it has reported a gain of about 21%, and for February a monster 92%.
"The decline in demand for mortgage loans has been steeper and had occurred more quickly than we had anticipated," said Terrance Hodel, North American's president.
"While we are accelerating the pace of our cost-reduction efforts, we do not expect to realize significant cost savings until the third quarter," he added.
Accelerating Cost Cuts
A spokesman said the reductions would include staff cuts but did not specify how extensive they would be. A problem, he said, was trying to peg staffing to an expected level of originations.
"We were expecting improvements in purchase loans in April as the prime homebuying season kicks in, but refis kept dropping and volume was disappointing," he said. This means cost cutting has had to be accelerated.
The first three months of 1993 were relatively soft ones for mortgage originations industry-wide despite the record year. This made year-to-year comparisons this year fairly impressive despite the strong downtrend. From now on, though, the comparisons will be getting tough.
Servicing Portfolio Growth
At Countrywide, for example, originations were $4.1 billion in May 1993 and climbed steadily, topping $5 billion in November and December.
Clearly, some very hefty year-to-year declines lie ahead. If the May 1993 figure is no better than April's, the drop would be at least 36%.
Despite the drop in originations, though, the news from Countrywide wasn't all bad.
The company reported that its servicing portfolio grew to more than $90 billion as prepayments slackened to $1.1 billion, an annual rate of about 15% and close to what is considered normal attrition.