First Horizon Home Loans will dismiss all but its best sales people, reduce its wholesale operation and cut costs in anticipation of significantly lower originations.
The Tennessee-based lender will eliminate up to 50 percent of its mortgage sales force, reduce support staff and close under-performing mortgage branches, parent First Horizon National Corp. announced Wednesday.
"We're going to be aggressive and dramatically improve our performance and efficiency by keeping only our most productive sales performers, who for us generate almost 90 percent of our production," chief executive, Jerry Baker, said in the announcement. "In addition, we'll make reductions in our wholesale divisions and specialty sales forces.''
The strategic actions, in anticipation that mortgage originations will be worse than the 25-percent decrease the industry is forecasting over the next year or two, will result in 15 branch closures over the next quarter and layoffs of about 1,500 out of 5,000 employees in the mortgage business, Baker said at a Lehman Brothers conference today.
Baker said the top half of the mortgage sales force originate 75 percent of the business, thereby the downsizing will occur in the bottom half of in both the retail and wholesale channels.
"I'd really like to see us create what I would think of as an elite or high-performing sales force, one in which we would not accept less than an appropriate level per individual," Baker said at the conference. "That's the direction the mortgage company is moving."
The lender, which said about 97 percent of its locked pipeline is agency conforming product and the remainder mostly prime jumbo product, compared to 67 percent at the end of the second quarter, said it made pricing adjustments to loans. However, it expects spread widening in the third quarter to have a pretax impact of $40 million to $50 million over the second quarter's level of $16 million.
First Horizon expects $35 million to $45 million in 2008 pretax earnings to benefit from the mortgage business reductions, according to the conference.
Adjustments to the mortgage business are part of an ongoing effort to redeploy capital to higher-return businesses. There will also be changes in the national real estate and banking businesses, including divestiture of First Horizon Bank branches and shrinking the real estate portfolios on its balance sheet and reducing staff in consumer and construction lending business.
Excluding the staff downsizing that will occur in the mortgage staff and divesture of First Horizon Banks, the company has identified $175 million in costs it could eliminate, which is about 10 percent of its annual expense base.
Throughout the company, at least 1,500 jobs will be eliminated by early 2008, according to the announcement. About $125 million of the $175 million in costs should be eliminated by the first quarter next year, including approximately 800 jobs that will be cut over 2007, the company said.