Lenders shift focus as they prepare for potential market recovery
After a brutal year of job cuts in 2023, lenders are prioritizing talent management and cost-cutting as their top priorities, according to Fannie Mae’s latest Mortgage Lender Sentiment Survey (MLSS).
The survey, which included over 200 senior mortgage executives, revealed that nearly two-thirds of lenders downsized their workforce in 2023. However, only a minority expect this trend to continue this year. Instead, 54% anticipate no changes in staff size, 18% foresee further reductions, and 28% plan to expand their workforce.
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“After job cuts in 2023, and with lenders generally less pessimistic about the economy and the direction of the mortgage market, staff sizes appear to be normalizing,” Fannie Mae chief economist Doug Duncan said in the MLSS report. “Some shared plans to increase their workforce this year and many remain focused on talent management.”
Lenders’ outlook on the economy has improved since last year. In the latest survey, 66% expect a recession over the next two years, down from 93% in 2023. Despite this, concerns about low housing supply and higher mortgage rates persist.
The priorities for 2024 mark a shift from previous years. Cost-cutting, a top-three concern since 2022, remains crucial. However, talent management has now taken the lead, emphasizing the importance of recruiting and retaining skilled personnel. This focus on talent management has pushed consumer-facing technology out of the top three priorities for the first time since 2017.
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“Mortgage origination volumes declined significantly as interest rates rose over the last couple of years,” Duncan noted. “This contributed to compressed profit margins for lenders and layoffs across the industry. Employment levels in the mortgage industry are at their lowest since 2014.
“Including the first quarter of 2024, on average, mortgage lenders have now experienced eight consecutive quarters of net production losses. The average origination cost per loan has steadily increased since Q2 2020, and personnel accounts for most of lender expense.”
Looking ahead, lenders’ views on a potential refinance boom are mixed. Nearly 60% expect a boom in 2025, while 33% do not foresee any significant increase in refinance activity. Depository institutions are particularly skeptical about a near-term refinance boom compared to mortgage banks.
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Duncan pointed out that mortgage activity likely hit a post-pandemic floor following the historically high mortgage purchase and refinance volumes during the pandemic.
“As a result, we believe some mortgage lenders are now preparing their workforces to meet potential growth in mortgage originations should the slow recovery of the housing market continue through the rest of this year and into 2025,” he said.
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