Mortgage lender LoanDepot is set to sack another 2,000 employees by the end of the year as the company cuts back "to align with rapidly changing market conditions." The mass layoff is part of the company's plan to decrease the workforce to 6,500 by the end of 2022.
The company, which had 11,300 workers at the end of 2021, has already slashed 2,800 jobs this year.
"We anticipate continued challenging market conditions, with mortgage originations projected to decline by roughly half in 2022 from 2021, including an accelerated decline in the second half of 2022, followed by a further decline in 2023," stated Chief Financial Officer Patrick Flanagan.
As part of the mass layoff, LoanDepot anticipates incurring additional non-operating expenses during the second half of 2022, including severance and benefits-related charges of $25 million to $28 million; charges related to the exit of real estate between about $2.5 million to $3.5 million; and outside service costs of $7 million to $9 million
For the second quarter, the company registered a non-cash impairment charge of $42 million.
LoanDepot announced in a July 12 regulatory filing with the Securities and Exchange Commission that it is aiming to create about $375 million to $400 million in "annualized savings" by the end of 2022 by adopting measures such as headcount reduction, attrition, reduced marketing and third-party spending and real estate consolidation.
According to Flanagan, the corporation presently has a cash position of about $1 billion. The company is anticipating "continued challenging market conditions," guessing mortgage originations to decrease by about 50 percent in 2022.
A rapid decline is anticipated in the second half of the year, succeeded by a "further decline" in 2023.
LoanDepot was focused on reducing costs "significantly" during the second quarter of 2022. Severance packages and benefits-related payments in the second quarter were computed to be at a value of $3.5 million to $4.5 million.
"Over the next two quarters, we expect to accelerate these efforts and aggressively drive down our costs in line with our previously stated goal of exiting this year with a profitable operating run rate. After two years of substantial headcount and expense growth that was necessary to support unprecedented origination volumes we are returning to previous levels of staffing and expense," Flanagan said.
Collapsing mortgage market generates housing affordability crisis
Increasing prices of homes and rising mortgage rates have generated a housing affordability crisis in America.
According to the annual State of the Nation's Housing Report issued in June by Harvard University, nearly four million renter households have been priced out from purchasing a home as they do not have the qualifying income required to be approved for a mortgage. (Related: Housing bubble about to burst? Mortgage applications crash to 22-year low as monthly payments skyrocket)
As cheapness becomes a challenge, the demand for homes and mortgages drops, thereby affecting the mortgage industry. Wells Fargo & Co. has already dismissed at least 114 workers in 2022 from its mortgage lending team. JPMorgan Chase & Co. declared layoffs in June, which affected over 1,000 workers. Some staff have been moved to new groups.
"There is almost no incentive to refinance. So that drop off in business, in addition to our view of slowing (home) sales, suggests there will need to be layoffs across the industry," Fannie Mae Senior Vice President and Chief Economist Douglas Duncan said in an interview with Reuters.
According to Olu Sonola, head of Regional Economics at Fitch Ratings, the western, midwestern and southern regions of the United States are expected to see more job losses in the housing market.
Meanwhile, the Federal Reserve's quick interest rate increases are taking a severe toll on the housing market. Home prices and sales have dropped throughout the year as buyers draw back from soaring mortgage interest rates, which is one of the first sectors of the economy affected by Fed rate hikes.
As the Fed increases its baseline interest rate range, borrowing costs for consumers and businesses climb along the way. The average rate for a 30-year fixed-rate mortgage soared to 5.3 percent at the end of last week up from 3.1 percent at the start of the year according to Freddie Mac.
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Millions of Americans pushed out of the housing market as prices soar.
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