Layoffs: The long-term effect of rising mortgage ratesby Tim Manni
There are short-term and long-term effects of rising mortgage rates. In recent weeks, the presence of 4 percent mortgage rates sent many to the sidelines. Weekly mortgage applications showed us that borrowers were waiting for rates to fall once more before they decided to move forward with their refinance or purchase.
That short-term shock is bound to wear off as borrowers realize that 4 percent mortgage rates aren’t the end of the world, and they are, in fact, still historically low.
But the true barometer of the long-term impact of rising rates will be layoffs. Eventually, rising rates will force banks to shed positions as there just won’t be enough work to go around.
We’re already seeing signs of this trend forming at banks across the country.
Last week, JP Morgan Chase announced the layoffs of approximately 1,800 people in their mortgage servicing unit. This layoff isn’t the declaration of the end of the nation’s longest refi boom or a recovering real estate market grinding to a halt. Instead, it’s a sign that the pool of new mortgage customers is much improved, reducing the number of delinquent borrowers banks have to deal with.
Years of stringent lending conditions have brought highly qualified borrowers through the door. CNBC reported that the bulk of JP Morgan’s recent layoffs have come from its mortgage servicing unit, which is responsible for collecting payments from delinquent borrowers. Fewer delinquencies have caused servicing units to shrink at banks nationwide, said CNBC.
Even Bank of America, who has been mired in bad loans since their acquisition of Countrywide in 2006, has seen their pool of delinquent loans shrink appreciably in the last year alone.
What’s ahead for mortgage rates?
Will mortgage rates ease again? Probably. Mortgage rates tend to rise much faster than they fall, leaving some room for them to tick back downward.
Rising rates will slow refinance activity, that’s just a fact. You can monitor weekly mortgage application numbers to get a short-term gauge of mortgage activity. But perhaps the best barometer of how rising mortgage rates are hurting activity over the long term will be job loss.
To what degree will this eventual job loss hurt the economy? That remains to be seen. When you see banks begin to seriously layoff mortgage employees, you’ll know rising rates have made their presence felt in the market.