Ameriquest Mortgage Co.'s recent decision to slash 1,500 jobs is the start of a national shakeout in the home-loan business -- one that could cost tens of thousands of workers their jobs and squeeze weaker companies out of the business, industry experts say.
As interest rates have risen, refinancings have faded and applications for loans to purchase homes have begun to decline, according to the Mortgage Bankers Assn.
Many borrowers already have taken out equity from their homes through refinancings and second mortgages. If home prices level off, as many predict, these homeowners will have less equity to extract and less incentive to refinance.
Mortgage Bankers Assn. economist Doug Duncan said jobs would be lost as some companies pared their staffs and others were acquired or went out of business. The number of job reductions will depend on how high rates go, he said, with as many as 80,000 positions eliminated should 30-year fixed rates climb to 8.25%, up from 6.32% currently.
In addition to layoffs, experts also expect a shakeout in the ranks of mortgage brokers, the independent loan originators whose numbers have swollen along with the home-lending boom that began in 2001.
These brokers aren't counted in the payroll surveys conducted by the government. John Marcell, president of the California Assn. of Mortgage Brokers, believes that they now total about 25,000 in the state, but predicts that's about to change radically as ill-trained brokers who got into the business during the boom now find it harder to make a living.
"I would say probably half of what's out there today could wash out," Marcell said.
Any contraction could place a drag on the economies of mortgage hot spots such as Orange County, where several major lending companies are based.
In their annual forecast Thursday, economists at Chapman University in Orange said growth in mortgage-related employment already had slowed in the county and was expected to begin declining late next year.
That decline, along with an expected downturn in construction, could slow job growth in the county from 2.2% last year to 1.4% in 2006 and even further in 2007, Chapman economist Esmael Adibi said in an interview.
By reducing spending power and demand for office space, the loss of mortgage jobs can cause ripple effects through local economies like Orange County's. Ryan Ratcliff, an economist for the Anderson Forecast at UCLA, said studies of the early 1990s recession showed that regions with large employment in the mortgage industry were hurt disproportionately in economic downturns.
