Mortgage originator loanDepot on Tuesday unveiled a plan to cut thousands of jobs and reduce costs “significantly” as higher interest rates sink mortgage demand—becoming the latest company to warn the housing market is due for a steeper turnaround after the pandemic-era home-buying frenzy.
In a regulatory filing released Tuesday, California-based loanDepot said it has cut about 2,800 jobs this year and expects to cut about 2,000 more by the year-end, as part of a plan to “aggressively” cut costs by about $400 million each year; the company currently employs about 8,500 people.
“After two years of record-breaking volumes, the market has contracted sharply and abruptly in 2022,” CEO Frank Martell said in a statement about the plan, which also includes reduced marketing and property sales to return to previous levels of staffing and expenses.
Chief Financial Officer Patrick Flanagan said the firm anticipates “challenging market conditions” to continue through next year, with mortgage originations projected to decline by about half in 2021, as compared to last year, and an “accelerated” decline in the coming months.
Shares of loanDepot, the nation’s third-largest mortgage origination firm, slipped nearly 1% in early trading Tuesday and have collapsed nearly 88% this year, compared to a 20% decline for the S&P 500.
The company’s struggles come as housing demand begins to take a hit from the Federal Reserve’s interest rate hikes, which are designed to cool decades-high inflation but also push up the price of debt; the rate for a 30-year fixed mortgage has climbed to 5.77% from 3.29% at the start of the year, adding hundreds of dollars to the cost of new mortgages each month.
“Rates are significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed,” says Joel Kan of the Mortgage Bankers Association. “Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance.”
Home-buying demand skyrocketed during the pandemic as interest rates collapsed and an influx of Americans started working from home. However, the Fed’s rate hikes have quickly spurred a reversal. Mortgage originations jumped from $2.3 trillion in 2019 to more than $4 trillion in 2020 and 2021, but demand has since plummeted to the lowest level in more than two decades.