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Mortgage Results Drive HomeStreet Layoffs

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With home-lending business coming in more slowly than expected, HomeStreet Inc.  has begun reducing its mortgage workforce. Further downsizing could be ahead.

At $16 million for the three months ended June 30, HomeStreet’s income before income taxes was down by more than half from $35 million in the second-quarter 2016.

Those results, as well as a collection of other operational and financial details,
were presented in the Seattle-based organization’s second-quarter 2017 earnings report.

But the most-recent earnings modestly improved from $13 million in the first-quarter 2017.

Mortgage income before income taxes was $2.539 million, plunging from $23.456 million the same three months in 2016.
The deterioration was blamed on slowing loan originations and thinner profit margins.

“The mortgage banking segment continues to suffer from a limited supply of available housing in our markets,” HomeStreet Chairman, President and Chief Executive Officer
Mark K. Mason explained in the report.

A lack of available housing has propped home markets in the Northwest up to the top appreciation spots in the country. In the S&P CoreLogic Case-Shiller Indices from S&P Dow Jones Indices, Seattle home prices were up 13.3 percent in May from a year earlier — making it the top-appreciating metropolitan area among 20 tracked. Portland was the No. 2 market at 8.9 percent.

From April 1, 2017, through the middle of this year, $2.011 billion in single-family loans were closed by HomeStreet. Volume climbed from $1.621 billion in the first quarter but fell short of the $2.262 billion funded in the second quarter of last year.

“Historically, the second quarter is the strongest quarter of the year for mortgage volume and mortgage banking profitability,” Mason said. “Lower than expected single-family mortgage origination volume and profit margins this quarter were driven by extremely low levels of new and resale homes available for sale in our markets.”

Full first-half production amounted to $3.632 billion.

A moderate increase in single-family mortgage rate lock commitments to $2.0 billion in the second quarter from $1.6 billion in the prior period suggests that origination volume is likely holding up in the current quarter.

During the second quarter of this year, HomeStreet originated more than $0.058 billion in multifamily loans,
versus nearly $0.058 billion three months earlier and $0.147 billion in the same three months last year.

Single-family third-party servicing grew to $21.105 billion from $20.303 billion and has been substantially bolstered from last year’s midpoint, when the servicing portfolio was just $17.074 billion. Most of the servicing was agency.

The ratio of mortgage servicing rights carrying value to the loans was 1.12 percent, off from 1.16 percent the prior quarter.

On HomeStreet’s balance sheet were $1.563 billion in residential assets, more than $1.481 billion at the conclusion of the first quarter of this year and $1.527 billion at the conclusion of the first half of last year.
Lately, the balance was comprised of $1.148 billion in single-family loans and $0.415 billion in home-equity loans.

At the end of last month, the bank serviced $1.136 billion in multifamily mortgages. The total has grown from $1.024 billion one year earlier.

Commercial real estate assets ended last month at $2.371 billion,
growing from $2.282 billion at the end of March and $1.964 billion at the finish of last year’s first half. The June 30, 2017, total consisted of $0.942 billion in commercial mortgages, $0.781 billion in multifamily loans and $0.649 billion in construction-and-land-development loans.

Within the mortgage division, Mason said the bank-holding company cut mortgage headcount by 73 during the quarter as a result of cost reductions tied to lower originations than expected. More layoffs could be ahead if lending volume doesn’t support current capacity or profit margins overall.

Specific markets that don’t meet profitable standards could see continued downsizing.

Mortgage headcount was slashed to 1,487 from 1,558 at the end of the first quarter. But staffing was actually up 78 people compared to mid-2016.

Company-wide staffing finished the first half at 2,542,
thirty-nine fewer employees than as of March 31. The drop was all in single-family and apparently partially offset by growth in other parts of the bank. Still, more people were on the payroll than as of mid-2016, when the count was 2,335.

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