An analyst with Friedman, Billings, Ramsey & Co. released a grim assessment of the mortgage industry Friday, claiming the sagging housing market coupled with rising credit costs will force a substantial amount of job cuts in 2008.
“Bottom line, too many loan brokers are chasing too few loans!” analyst Paul J. Miller said in a research note. “Until the mortgage industry eliminates back-office personnel and loan officers, which could take several quarters, we believe the mortgage industry will not generate an economic profit.”
Miller said the mortgage industry needs to cut one-third of its roughly 400,000 jobs to generate a profit in 2008, and also lowered his 2008 mortgage origination forecast to about $1.8 trillion from $2.2 trillion, citing the continuing tightening of credit guidelines within the industry.
He also noted that annual loan origination volume has historically depended on mortgage rates, making it difficult to predict, but said “lower interest this time around is having only a marginal impact on origination volume as reduced liquidity coupled with stricter underwriting standards are driving origination volumes lower.”
The FBR analyst added that mortgage employment is a good gauge of the overall strength of the industry, which he believes is three to four quarters away from reaching equilibrium between production and employment that will permit growth.
A year ago the mortgage industry employed roughly 503,000 people, so it has already shrunk by about 20% in the past 12 months, according to Miller.
Check out the full list of mortgage layoffs, lender closures, mergers, and rumors.