A survey of independent mortgage bankers conducted by analytics firm Richey May & Co. shows overall mortgage production activity fell in the third quarter, prompting lenders to silently brace for a period in which expenses could outstrip revenue enough to prompt job cuts.

The latest data from Richey May shows a cooling in the market, with overall mortgage production down 12.4% from the second quarter as refinancing activity continues to plummet — falling 42% during the third quarter alone. 

Independent mortgage bankers are searching for their new bottom line, Trevor Reinhart, manager of advisory servicers at Richey May told HousingWire in an interview. The end result, he notes, is a situation in which the market by mid-2014 may see lenders dealing with rising expenses tied to compensation and compliance and falling production volume — two trends that will result in potential staffing reductions.

At a recent industry conference, Reinhart found mortgage industry professionals predicting more layoffs within the independent banking channel down the road.

"You would anticipate that you can only break even or lose money for so long," he said. In the independent space, bankers have a great deal of loyalty to employees, he points out. However, even if they are hesitant to pull the trigger on jobs right now, lean times will inevitably lead to some staffing cuts in 2014.

What’s clear from the survey is revenue is falling even if servicing is helping some firms make up for those originations losses.

The latest Richey May survey shows net income at independent mortgage banking firms declining 60 basis points from the second to the third quarter. Yet, lenders with servicing portfolios in the third quarter benefited from having a different slice of the business, allowing those particular entities to realize smaller declines than their counterparts without servicing.

Loan margins also declined 42 basis points in the third quarter when compared to the second.

The solution for some independent bankers will be consolidation, with firms in the space joining forces with other entities to deal with economic headwinds produced by higher compliance and compensation costs.

"We see companies broadening their different operating channels, if they are primarily retail, they may be bringing on wholesale and direct branches,” Reinhart said.  Consolidation is expected on the independent side with the cost of entry and compliance now so high, he points out.

As a result, "you are going to see bigger lenders in the independent space emerge," Reinhart concluded.