American Financing Corp. in Aurora is laying off an undisclosed number of workers

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Consumers aren’t the only ones feeling the effects of rapidly rising interest rates this year. More mortgage companies are starting to lay off workers as demand for mortgage refinance plummets.

Employees of American Financing Corp. in Aurora experienced the harsh new reality facing the mortgage industry on Monday when they were called into a Zoom meeting titled “Our Future Includes You.” For a significant but undisclosed number, this description was not entirely accurate.

“The mortgage market is starting to normalize after being incredibly hot over the past two years. Like many lenders, we had to assess our business needs and alignment of our workforce. We explored many angles but unfortunately had to lay off some of our employees. Those affected are receiving severance and benefits,” said Susan Cahill, president and chief operating officer of American Financing in an email.

Cahill declined to detail the number of laid-off workers, and the Colorado Department of Labor and Employment did not issue a notice detailing the downsizing. But the workers involved described it as substantial and effective immediately.

Mortgage rates, which started the year at around 3.1% for a 30-year loan, are now closer to 5.1%, according to the St. Louis Federal Reserve. This is the fastest rise in mortgage rates in 35 years. Subtracting points and other items, 30-year loan rates are actually closer to 5.5%, said Lou Barnes, Boulder-based financial markets analyst at Cherry Creek Mortgage.

“The capacity of the industry is so inflated by the two years of COVID-19,” he said. “No matter how disciplined you are, everyone is going to get caught.”

Firms that have focused on providing loans for home purchases, however, are much better positioned to bear higher rates than those that have pursued the refinancing market, he said.

For the week ended April 29, refinances accounted for just over a third of all mortgage applications, up from nearly two-thirds at the end of last year, according to a weekly Mortgage Bankers Association survey. The MBA refinance activity index was 71% lower than the same week a year earlier, while purchase mortgage originations were down 11%.

When the pandemic hit, the Federal Reserve cut its benchmark interest rates as low as possible while remaining positive. This sparked a boom in the mortgage industry as consumers rushed to lock in 30-year mortgage rates in the mid-2% range.

“Recently, mortgage layoffs have been driven by a significant drop in demand for refinance and fewer eligible buyers thanks to significantly higher mortgage rates,” wrote Colin Robertson, who saw a recovery on a blog which he started in 2007 to follow the downturn in the mortgage industry. “Put simply, mortgage companies need to ‘adapt’ because too many players are looking for far too few loans.”

Nicole Rueth, producing branch manager at Fairway Mortgage in Denver, said she couldn’t blame mortgage companies that pursued opportunities presented to them during the pandemic. Many of the larger lenders have achieved this by seeking the “low-hanging fruit” of refinances. But consumers should pay attention to how companies, such as better.combehave when the situation reverses on them.

“It’s a character statement,” said Rueth, who hired one of the laid-off workers from American Financing.

Unlike the last big mortgage downturn of the 2000s, sources of capital aren’t cutting lines of credit to mortgage lenders, Barnes said. The industry faces a volume problem, not a credit quality problem.

Damian and Gabie Maldonado incorporated American Financing in June 2001 and weathered the excesses of the housing boom and bust that wiped out the most aggressive lenders. More recently, the company featured humorous television commercials featuring former Broncos quarterback Peyton Manning.

In 2020, American Financing was Colorado’s third-largest residential mortgage lender, with $4.35 billion in lending volume, and the largest residential lender headquartered in the state, according to a compiled list by The Denver Business Journal. Detroit-based Rocket Mortgage, which ranked second in Colorado on the list, recently announced it was laying off 2,000 workers, or 8% of its nationwide workforce.

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