As the refinancing boom fluctuates and government leniency comes to an end, some companies are reverting to a recession strategy that hasn't been widely used in years: cross-training licensed loan officers to handle change.
Equipping licensed loan officers to handle requests for modified payments as well as new loans could ease the transition to phasing out mortgages if a rate hike slows the volume and the economic damage from the pandemic continues.
Friday's market indicators were in line with one such scenario, according to the latest job report from the Bureau of Labor Statistics.
This improved, but not ideal, report brought the indicative yield on 10-year government bonds to an initial high of 1.21% in 2021. Also, the January non-bank mortgage numbers showed a slight increase in wages at 374,000, and the Industry estimates for December have been revised down to 369,200.
"As the rates go up, the volume could go down and you have people indulgent. Therefore, changes need to be made and you can devote many resources to processing new originations to process them," said Nate Johnson, executive vice president, SLK Global .
Forbearance changes to many borrowers' loan terms are likely to be needed as the US unemployment rate in February was 6.2%, almost double what it was before the pandemic, despite strong job growth.
In February, 379,000 US jobs were added, compared to just 49,000 in the previous month. (Wider job numbers are reported with less delay than mortgage industry estimates.)
Existing know-how regarding loan modifications will likely need to be augmented with new hires, as the industry has not had to process a large volume of modifications since the Great Recession.
Since mods are sporadic, the typical mortgage company may not want to invest in long-term staff for this purpose, and fulfillment providers like SLK are currently pursuing this. (SLK is a subsidiary of Fifth Third Bank that also works with other lenders.)
In addition to SLK, there are at least two other fulfillment providers in the industry that have strategies that combine origination and service functions: Evolve Mortgage Services and SitusAMC.
Historically, the extent to which the industry works with these providers has fluctuated, but it is possible that some licensed loan officers will gravitate towards them as interest rates continue to rise and positions with lenders decline, said Michael Franco, CEO of SitusAMC.
This, coupled with an expected increase in more labor-intensive purchase credits, could support demand and potentially result in net gains in industrial jobs even if interest rates continue to rise. But only if the strength of the inventory home purchase market is strong enough to sustain volume.
"Whether this leads to a slower increase in personnel depends on how strongly the volume of new originations is influenced by a potentially rising rate environment," said Franco.