Brett Ludden, managing director and head of mortgage solutions at Milliman, has seen a shift in mortgage lenders’ expectations since the beginning of the year.
Following a period of 30-year fixed mortgage rates in the low 6s and a brief refinance rally in the first few months of 2026, lenders remained optimistic about the rest of the year.
“You probably heard a lot of lenders were gearing up for finally seeing rates drop, and they hired,” Ludden told HousingWire.
But the U.S. war in Iran, its subsequent impact on consumer prices and the Federal Reserve keeping its benchmark rate higher for longer soon brought the party to an end. Rates are now closer to 7%.
“I’ve heard multiple lenders tell me they can do 40% more volume without adding any people right now; all they need to add is maybe a funder or a post-closer,” Ludden said. “In my mind, as a strategic adviser, my question is: ‘Why wouldn’t you be cutting to get as lean as you can?’ Because the expectations today are very different than they were in January. A lot of lenders are slowly coming to that realization.”
So far in 2026, the mortgage industry has seen a few confirmations of layoffs, companies adjusting their workforces due to consolidation, or cost cuts across the business to reach profitability after years of margin compression.
Lower profits, flat volumes
In fact, Mortgage Bankers Association (MBA) data covering independent mortgage banks and mortgage subsidiaries of chartered banks shows that the average net production profit sat at 25 basis points in the second quarter of this year, compared to a recent peak of 89 bps in the first quarter of 2021.
Lenders are generating lower profits per loan and cannot count on volume growth to offset these declines. Loan counts may bump up from 5.45 million in 2025 to 5.69 million in 2026, before holding steady at the 5.67-million mark in 2027 and 2028, according to the MBA.
“I’ve been tracking this industry for over two decades, and I’ve never seen such a long period of time of compressed margins,” said Marina Walsh, the MBA’s vice president of industry analysis. “Given that we’re anticipating flat volume, employment would probably stay the same or go down because there’s so much investment in technology on both the sales and the fulfillment sides.”
According to Walsh, due to the combination of artificial intelligence and the types of products being originated — including government and non-qualified mortgages — “it’s going to get tougher to be in this business if you’re reliant on the low-hanging, agency-eligible product. It requires a retraining.”
Adjusting expectations
Any fresh rounds of layoffs would follow years of workforce reductions since the post-pandemic housing market peak. Per the MBA’s quarterly production report, the average number of production employees per company dropped from 555 in Q2 2022 to 337 in Q1 2026.
Meanwhile, the total number of mortgage loan officers fell from a peak of 124,805 in Q4 2021 to 86,192 in Q1 2026, according to the Nationwide Multistate Licensing System.
While more job cuts will arrive eventually, Coby Hakalir — who leads the mortgage banking division at T3 Sixty — does not anticipate a “bloody massacre” because most lenders have already cut back significantly. For these companies, consolidation is the most likely solution.
“Lenders came into this year with rates looking like they were improving. We got to February and we hit the 5 handle, then the war with Iran started, and it’s been an uphill climb ever since,” Hakalir said. “We’re on the cusp of approaching 7% interest rates and we’re no longer in a purchase market. The spring purchase market has come and gone.”
With no end in sight for the war in Iran and the midterm elections quickly approaching, he said lenders “have to be looking at cutting costs.” He added that “a lot of the layoffs that we’re seeing or that we’re about to see are going to come just because of that reasoning.”
But he added: “When companies don’t have a lot of margin to eliminate staff, that’s when you start to see consolidation happening.”
The role of technology
Doug Harter, a managing director and mortgage and specialty finance analyst at BTIG, says that with companies becoming more efficient through AI and other technologies — combined with a challenging rate environment — the risk is definitely tilted toward more layoffs.
“If not layoffs, you definitely would see less hiring. Maybe the reduction comes more from attrition as opposed to layoffs,” Harter said.
Mergers and acquisitions can offer a path to rationalize capacity while diversifying revenue, Harter said. Adding servicing balances, for example, can generate cash flow that is not directly tied to new origination volume.
“In a time of a higher-for-longer [rates], having some synergies from an acquisition and being able to optimize and take costs out would give you some advantage at resizing your cost structure. There is some advantage to that as well,” Harter added.
Harter clearly sees excess capacity in an industry that has been growing its technology investments.
“At some point, the lender will decide what that right level of overcapacity is, and do they look to take costs out or do they continue to kind of leave that optionality if volumes rebound?” he said.