Hello, LOs!
I'm sorry, but the glory days have ended. For the second consecutive quarter, margins fell another 50 bps-plus for several of the biggest lenders in the country, according to earnings statements.
The explanation is simple: they have fewer refi clients, limited inventory is depressing the purchase market, and they spent 2020 hiring anyone with a pulse. Costs are up, but volume – for many – is down.
I want to highlight something loanDepot's Anthony Hsieh said on an earnings call earlier this week.
"Last year, obviously, everybody is still counting, but we're looking at $4 trillion of capacity last year," he said. "And this year, we're looking at $3 trillion. There's $1 trillion of excess capacity that the industry needs to shed. And everyone is always stubborn about shedding capacity until they understand they must: that once capacity is shed, margins return."
That looks like a bad omen for the thousands of people who entered the industry last year, and especially for underwriters who commanded huge salaries and bonuses.
As for LOs, things could start getting interesting at the end of Q2. The ranks of all those processors and underwriters could thin.
"They say 'many hands make light work,' and in the first quarter of this year we definitely saw lenders sharing the workload," said LBA Ware founder and CEO Lori Brewer. "Lenders employed 32% more originators and 58% more processors than this time last year and paid incentive compensation to an average of three to four individuals per loan. So far, volume remains brisk across purchase and refi, but as refi volume wanes it could prove difficult to sustain this level of staffing. This is a trend we will be monitoring closely in the coming months."
LOs – what are you hearing about staffing levels as volume drops and margins thin? Please email me anonymously at jkleimann@housingwire.com.
James Kleimann
Managing Editor, HousingWire
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