(WSJ) David Siegel went to work for an affiliate of Guaranteed Rate in 2021 and got a signing bonus of more than $100,000. Interest rates were super low, and mortgage bankers were raking in cash.
Now that business has dried up, the mortgage company wants its money back. He said it fired him one month shy of the date when it could no longer ask for the bonus back, then demanded the money. Guaranteed Rate and its affiliates are also telling hundreds of other former employees that they have to return their signing bonuses, people familiar with the matter said.
“It seems like they realize they aren’t making money in their mortgage business, so the way to get income is to claw back the payments,” said Siegel, who is based in New Jersey.
Guaranteed Rate wouldn’t comment on individual employees. But its general counsel, Anwar Shatat, said, “We are not going to be apologetic about exercising our legal rights to recover our money.”
The mortgage industry is notoriously boom or bust, but this bust is especially bad—and it’s only getting started.
Unlike previous housing downturns, there’s no obvious way out. If the economy keeps chugging along, then the Federal Reserve will continue to keep rates high—which would in turn keep the housing market in the dumps. If the economy sinks, the Fed may loosen rates—but a recession wouldn’t do the housing market much good either.
Many mortgage companies are growing desperate. They are laying off workers, merging with other lenders, or exiting the business altogether.
Just a few years ago, the mortgage industry was in the middle of another extreme: a record boom. The pandemic ushered in low-interest rates that prompted millions of homeowners to refinance and others to buy bigger homes. Lenders wrote trillions of dollars worth of loans and added staff at a rapid clip, often paying up to do so. But when the Fed started hiking rates last year, the industry quickly swung from feast to famine.
Interest rates are unlikely to fall back to ultralow levels any time soon—if ever. On Thursday, mortgage rates again hit their highest level since 2000. At the Mortgage Bankers Association’s annual conference this month, a mantra repeated by a few speakers was “Stay alive until ’25,’” when things might get a little better, according to attendees.
Some former regulators and industry officials say the current period is worse than the 2008 financial crisis when at least falling rates spurred a large refinancing wave. Because so many borrowers already locked in ultralow-rate mortgages during the pandemic, there’s no big refinancing rescue on the way.
“I’ve been in this business 40 years and I don’t remember a correction like this,” said David Stevens, a former housing finance regulator who now consults for the industry.
Mortgage application activity is now at its lowest level in nearly 30 years, according to the MBA.
Many lenders have already decided they can’t go it alone. Of the top 500 lenders two years ago, there are now about 435, according to Garth Graham, a senior partner at Stratmor Group, a mortgage advisory firm.
Mortgage industry employment has already declined 20% to about 337,000 people, from 420,000 in 2021, according to Bureau of Labor Statistics data compiled by the MBA, which anticipates a further 10% decline. The employment tally includes mortgage bankers, brokers, and loan processors but not real-estate agents.
Those still employed are earning less. Loan officers’ average monthly pay in September was down by more than half from three years earlier, according to financial technology company nCino. The average loan officer closed 3.45 loans last month versus 8.15 in the same month in 2020.
The mortgage market used to be Steve Walsh’s cash cow, but now it’s squeezing him on both sides. Business at his Scottsdale, Ariz., mortgage brokerage, Scout Mortgage, is down about 90%, he said, and headcount has fallen to seven from a high of about 25 at the end of 2020.
To save money, Walsh wants to downsize. But he has been unable to sell his 7,700-square-foot house at the $3 million he is seeking.
“We got the rug-pull of our lives, everyone did,” he said. “Rates are not supposed to be here.”
While much of mortgage lending is done by tiny firms, Chicago-based Guaranteed Rate is one of the biggest in the U.S. Its name is on the White Sox’s home stadium. Its mortgage production surged from $37 billion in 2019 to $115 billion in 2021, according to industry research group Inside Mortgage Finance.
The company brought on veteran bankers from big mortgage shops, aided by an internal software program known as Golden Goose that identified people to hire and what signing bonus to offer them, people familiar with the matter said. Many bankers were handed hundreds of thousands of dollars upfront. The highest performing few got $1 million or more. The bonuses were typically structured as loans forgiven after two years.
In early 2021, after the company poached several
Things didn’t always translate when the new employees came to Guaranteed Rate. Many found that Guaranteed Rate couldn’t offer the same low rates that their former employers had. And it got more difficult to win business when rates increased across the board, they said.
“It just became hard for them to compete,” said David Syme, a lawyer representing bankers fighting the Guaranteed Rate clawbacks. “How are my clients supposed to perform if the products are gone?”
In 2022, Guaranteed Rate’s originations dropped by more than half to about $53 billion, according to Inside Mortgage Finance.
“It became super toxic,” said Oren Orkin, who worked in the company’s headquarters for nearly a decade and left in September.
Signing bonuses aren’t unusual in the mortgage industry, and they were particularly big during the recent boom. Neither are attempts to get them back, especially in the current bust. Nations Lending and CrossCountry Mortgage, both based in the Cleveland area, also have been tussling with former employees over six-figure signing bonuses, according to lawsuits filed by the companies against the former employees.
At Guaranteed Rate, many bankers left on their own before the two-year mark, because they felt like they couldn’t earn enough. Some bankers said they were terminated before they reached two years, then were asked to return their signing bonuses.
The company said it “will continue to enforce our agreements.”
“The former employees who have been sued know very well that they signed agreements, including promissory notes, making it crystal clear what they needed to do to receive and earn the money,” said Shatat, Guaranteed Rate’s general counsel. “They have been sued because they have, and continue to, blatantly violate these agreements, and have steadfastly refused to repay what they clearly owe to the company.”
Siegel, the former banker at a Guaranteed Rate affiliate in New Jersey, said when business slowed down last year, the company introduced monthly performance goals. They hadn’t been part of the signing bonus agreement.
He emailed his boss multiple times offering to leave the company and return a prorated share of the signing bonus, but it went nowhere, he said.
In October 2022, and then again in December, he received letters saying he wasn’t meeting the performance goals, he said, and that he was at risk of termination and having his bonus clawed back.
He was terminated in January of this year, he said, just short of his two-year mark. In February, the company sent a letter demanding he return his entire signing bonus. The company has continued to pursue him for the money, he said.