- The purchase-mortgage firm Tomo is cutting almost a third of its staff and halting expansion plans.
- The news comes amid a wave of layoffs in the mortgage industry as interest rates have soared.
- Venture-capital markets have also cooled, with some VCs advising startups to lower costs.
Tomo, a startup focused on providing mortgages to people buying homes, announced on Tuesday that it is laying off 44 people, or almost a third of its roughly 150 employees.
The news comes amid a wave of layoffs at traditional lenders like Wells Fargo and more tech-enabled venture-backed startups like Better as interest rates have risen and volumes have slowed. Last week the drumbeat of job cuts continued at the lending arm of the brokerage Keller Williams, a company that also counts mostly on its purchase-mortgage business.
Tomo burst onto the scene last year with a pitch that it would work only with the more stable but more work-intensive purchase-mortgage market instead of the cyclical refinance market, following a $70 million seed infusion that was likely the largest-ever fundraise for a proptech. The company announced a $40 million Series A this year, with investors buying into the view that home purchases would remain strong, CEO Greg Schwartz, a former chief revenue and chief business officer at Zillow, told Insider.
Market conditions have since deteriorated — largely because of a 2-percentage-point increase in the average 30-year mortgage rate this year — making it clear that even companies tying their success to a firm housing market will face challenges.
Tomo on Tuesday said it was making significant staff cuts and rethinking plans to expand into additional real-estate markets.
“The recent shift in the mortgage and venture capital markets due to the rapid increase in interest rates has impacted Tomo’s business plans, and led us to make changes to our near-term strategy,” Schwartz wrote in a statement provided to Insider. “As part of these measures, we have reduced the size of Tomo’s workforce by almost a third. This was a last resort, but ultimately something we felt was necessary to maintain a strong foundation.”
The Mortgage Bankers Association predicted this month that purchase-mortgage originations would increase in 2022 from last year. But those projections have been pared back from the start of this year, suggesting that the shift has surprised even the most seasoned mortgage professionals. Refinancing originations are projected to plunge to well less than half of their 2021 volume.
Meanwhile, one of the most voracious buyers of homes has cooled its activity. Redfin’s iBuying unit has turned cautious on the US residential market because of growing “macro uncertainty,” its chief financial officer, Chris Nielsen, said during the Jefferies Virtual Internet Summit on Tuesday, according to Seeking Alpha.
While there is room for purchase mortgages to grow, the softening housing market is being met by a historic pullback in the venture-capital market after a jubilant boom during the pandemic. There are increasing signs that the venture-capital industry is slowing down, leading some investors advising startups to cut back on their commitments.