In 2010, California’s mortgage industry was finding its footing again after the brutal 2008 crash. Lenders were cautious but optimistic. Home prices had stabilized at reasonable levels, and borrowers could find 30-year fixed rates in the mid-4s. Life was getting back to normal.
Over the next eight years, something beautiful developed. Rates gradually declined from those mid-4s to the high-3s, sometimes dipping into the low-3s during particularly favorable periods. California home prices rose steadily but sensibly. Lenders expanded their operations, hired new loan officers, and opened branch locations from San Diego to Sacramento. The refinance market hummed along nicely as homeowners periodically found opportunities to improve their rates.
By 2018, you could walk into any mortgage company in Orange County or the Bay Area and feel the energy. Loan officers were busy but not overwhelmed. Processing departments moved loans efficiently. Companies were profitable but not euphoric. It was a sustainable, healthy business environment that felt like it could continue indefinitely.
Then March 2020 arrived, and everything changed in ways nobody saw coming.
When COVID hit California, something extraordinary happened in our mortgage world. While restaurants shuttered and tech workers suddenly found themselves working from cramped San Francisco apartments, they realized something profound: they could afford that Marin County home they’d always coveted. The Federal Reserve had slashed interest rates and started buying mortgage-backed securities aggressively. The result? Mortgage rates plummeted to levels we’d never seen before.
By December 2020, we witnessed history: 30-year fixed mortgage rates hit an all-time low of 2.65%¹. For about a year thereafter, rates ranged from 3% to about 3.5%. But here’s what made it absolutely incredible—it wasn’t just the rates. COVID had created the perfect storm for California mortgage demand.
People confined to their homes suddenly realized they needed better and bigger places to ride out the pandemic. Work from home became permanent for millions, meaning that spare bedroom now needed to be a proper office. Families wanted yards. City dwellers fled to suburbs. Everyone seemed to want more space, and with rates at historic lows, they could afford it.
The California refinance market exploded like nothing we’d ever seen. Anyone with a mortgage above 4% was calling their loan officer. From Eureka to San Diego, homeowners were tapping into their rapidly appreciating properties. And in California, those appreciation numbers were staggering. Consider the dramatic average home price increases across major Southern California counties between December 2020 and October 2023²:
Los Angeles County: From $1,030,000 to $1,230,000 (19.4% increase, $200,000 gain)
Orange County: From $1,015,000 to $1,360,000 (34.0% increase, $345,000 gain)
San Diego County: From $820,000 to $1,100,000 (34.1% increase, $280,000 gain)
San Bernardino County: From $448,000 to $564,000 (25.9% increase, $116,000 gain)
Riverside County: From $543,000 to $650,000 (19.7% increase, $107,000 gain)
Orange County and San Diego County led the surge with gains exceeding 34%, adding hundreds of thousands of dollars to average home prices in less than three years³.
California mortgage companies couldn’t hire fast enough. PennyMac Financial expanded their Thousand Oaks operations. New American Funding in Tustin was processing record volumes. Even smaller regional players were opening new branches and adding loan officers by the dozens. Processing timelines stretched to 90 days, but nobody cared because deals were closing, commissions were flowing, and everyone was making money.
Life in the mortgage business wasn’t just good—it was euphoric. Loan officers worked 12-hour days and still couldn’t keep up with applications. It felt like the boom would never end.
Then December 2021 arrived, and the music started to slow.
When the Perfect Storm Turned Catastrophic
By October 2023, those magical 2.65% rates had rocketed to 7.79%⁴—nearly tripling in less than two years. But here’s what made California’s crash so much more devastating than anywhere else: our home prices had climbed so high during the boom that even modest rate increases created payment shock unlike anywhere else in the country.
Consider this stark reality: A homebuyer purchasing a median-priced Orange County home ($1.2 million) saw their monthly mortgage payment jump from roughly $4,047 at 3% to $6,386 at 7%—an increase of over $2,300 per month, or $28,000 per year. In San Diego County, where the median hit $900,000, the payment shock was equally brutal.
The California Association of Realtors calculated that by mid-2025, you needed an annual household income of $237,000 just to afford a mid-tier California home⁵. With the state’s median household income at $96,500, only 16% of California families could even qualify for homeownership⁶. The Golden State’s housing market didn’t just cool—it froze solid.
California’s mortgage loan brokerage activity plummeted 25.7% in just one year, from 18,650 loans in 2021 to 13,865 loans in 2022⁷. The aggregate principal amounts fell 20.7% to $8.6 billion⁸. But these numbers only tell part of the story. What they don’t capture is the human devastation that followed.
The Casualties Mount Across the Golden State
The carnage started with the most vulnerable players—the fintech startups and mid-size regional lenders that had bet everything on the California market continuing its upward trajectory.
LoanSnap became the poster child for California’s mortgage destruction. The Costa Mesa based company had raised over $100 million from high-profile investors including Richard Branson and Joe Montana⁹. During the boom, they originated 2,164 loans totaling $822 million. But their entire business model depended on refinance volume. When rates spiked and refis disappeared, they couldn’t pivot fast enough. California revoked their license in October 2024, and the company essentially ceased operations¹⁰.
Reali, the San Mateo iBuyer and mortgage lender, shut down entirely in August 2022, eliminating 132 jobs¹¹. The company had been riding high on California’s red-hot real estate market, but the combination of rising rates and cooling home sales proved fatal.
But it was the systematic downsizing at California’s established players that really showed the depth of the crisis. PennyMac Financial, one of the state’s largest independent mortgage companies, executed wave after wave of devastating cuts:
-227 jobs eliminated in Agoura, Moorpark, and Westlake¹²
-81 positions cut in Roseville¹³
-84 workers laid off across Southern California in December 2023¹⁴
-Additional rounds affecting Pasadena (69 jobs), Thousand Oaks (32 jobs), and multiple facilities in Agoura Hills¹⁵
These weren’t temporary furloughs or voluntary buyouts—they were permanent reductions as California’s high-cost operating environment made survival increasingly difficult.
New American Funding in Tustin cut 300 jobs in August 2022, followed by another 240 in November¹⁶. Country Club Mortgage eliminated 105 employees in January 2024¹⁷. American Advisors Group in Irvine laid off 204 employees¹⁸. The pattern repeated across dozens of companies as California’s combination of high operational costs and collapsed transaction volumes created impossible economics.
If you worked at any of these companies, you watched colleagues pack up desks they’d occupied for years. You saw entire departments disappear overnight. Many of these were people who had built careers in California’s mortgage industry, thinking they’d found stable, well-paying work in a growing field.
The Lock In Effect Paralyzes California
What made California’s crisis particularly severe was something economists call the lock in effect, and nowhere was this phenomenon more pronounced than in the Golden State. An astounding 81% of California homeowners hold mortgage rates below 5%¹⁹, making it financially irrational for them to sell and purchase new homes at current rates above 7%.
Think about what this means for a typical California homeowner. Someone with a $800,000 mortgage at 3.5% has a monthly payment of roughly $3,593. If they sold and bought a similar home at 7%, their payment would jump to $5,322—an additional $1,729 per month, or $20,748 per year. Over 30 years, that’s an extra $518,460 in payments.
The typical California borrower now faces an additional $675 monthly payment if they moved²⁰, representing over $264,000 in extra payments over a 30-year loan life. With numbers like these, it’s no wonder that California home sales collapsed.
This created a vicious cycle. Homeowners stopped selling, which reduced inventory. The homes that did come to market attracted desperate buyers willing to pay premium prices, keeping values elevated. But with so few transactions, mortgage companies found themselves fighting over scraps of a market that had sustained them royally just two years earlier.
California’s Unique Perfect Storm
Several factors combined to make California’s mortgage crisis more severe than anywhere else in the country.
First, the state’s sky-high home prices amplified every rate increase. A one-point rate increase on a $400,000 mortgage (typical in much of the country) adds about $240 to the monthly payment. The same increase on a $1 million mortgage (increasingly common in California) adds $600. California borrowers felt every quarter-point rate increase like a sledgehammer.
Second, California’s regulatory environment added complexity and cost that smaller operators couldn’t absorb when volumes collapsed. The state’s additional disclosure requirements, lending regulations, and compliance costs that were manageable during the boom became crushing burdens when spread across dramatically fewer transactions.
Third, the state’s cost of doing business made downsizing particularly painful. California mortgage companies faced higher real estate costs, higher salaries, and higher operational expenses than competitors in other states. When revenues collapsed, the fixed costs that came with California operations became unsustainable quickly.
The numbers from the California Association of Realtors paint a stark picture: Southern California home sales in 2024 were 35% below the 21-year average²¹. Even more telling, the only years with fewer sales going back to 2005 were 2023 and 2024—worse than even the depths of the Great Recession²².
How the Survivors Adapted
The California mortgage companies that survived did so by making brutal but necessary changes. Many abandoned unprofitable product lines entirely, exiting FHA lending or jumbo loans where margins had become unsustainable. Others consolidated operations, closing branch offices in expensive markets like San Francisco and Los Angeles.
Some found salvation through specialization. Companies that pivoted to serve high-net-worth borrowers in markets like Palo Alto and Beverly Hills found that affluent buyers were still transacting, just at much lower volumes. Others focused on investment properties or specialized in bank statement lending for self-employed borrowers.
The technology divide became especially pronounced in California. Companies that had invested heavily in automation and digital processes found they could maintain operations with dramatically fewer employees. Rocket Mortgage’s California operations, for example, used AI and automation to process loans more efficiently, allowing them to compete even as traditional California lenders struggled with high labor costs.
But many California companies found they were simply too small to survive in the new environment. The state’s high operating costs required scale to maintain profitability, and without the transaction volumes to support that scale, closure became the only option.
What California’s Crisis Exposed
California’s mortgage meltdown wasn’t just about interest rates or home prices—it exposed fundamental structural problems that had been building for years.
The industry had become dangerously dependent on refinance volume, particularly in a state where homes appreciated so rapidly that cash-out refinances were a major profit center. When rates spiked, this entire revenue stream simply vanished overnight.
California companies had also become operationally overleveraged during the boom years. The average cost to originate a loan in California was significantly higher than the national average of $10,600²³, reflecting the state’s higher labor costs, real estate expenses, and regulatory burden. When volumes collapsed, these fixed costs became impossible to sustain.
The lock in effect proved more persistent and severe than anyone anticipated. Initially, industry experts thought homeowners would gradually adjust to higher rates and begin moving again. Instead, the payment shock was so severe in California’s high-priced markets that the effect has become entrenched, potentially lasting for years.
The Road Ahead
As mortgage rates have begun to moderate in 2025, some California industry veterans are optimistic about recovery. Fannie Mae projects rates declining to 5.8% by end of 2026²⁴, which could trigger some refinance activity and modest purchase market recovery.
But California’s mortgage industry will likely be permanently smaller and fundamentally different. Many of the jobs eliminated aren’t coming back. The companies that closed won’t reopen. The branch offices that shuttered won’t reopen their doors.
Even if rates decline to 6%, millions of California homeowners with sub-4% mortgages will remain reluctant to move. The natural turnover that keeps housing markets healthy may be impaired for years, keeping transaction volumes well below historical levels.
The surviving companies will be more automated, more efficient, and more focused on sustainable profitability rather than volume growth. Market concentration will continue, with larger players gaining share at the expense of smaller competitors who simply can’t operate efficiently in California’s high-cost environment.
For California’s mortgage professionals, this crisis has been a harsh education in market risk, operational efficiency, and the dangers of over-leverage. Those who survived learned to build businesses that can withstand volatility, to invest in technology that reduces per-unit costs, and to maintain capital reserves for the inevitable downturns.
The golden age of California mortgage lending—where rising home prices and falling rates created seemingly unlimited opportunity—is over. What emerges in its place will be more resilient but also more selective, more automated but also more concentrated.
The California dream of homeownership, already challenging before this crisis, has become even more elusive. And the mortgage industry that once thrived on making that dream accessible has been permanently transformed by the harsh realities of what happens when the music stops.
For those of us who lived through California’s mortgage boom and bust, the lesson is clear: when something seems too good to be true, it usually is. The question now is whether we’ve learned enough from this painful experience to build a more sustainable industry for the future.
Article Sources
¹ Federal Reserve Economic Data (FRED), 30-Year Fixed Rate Mortgage Average, https://fred.stlouisfed.org/series/MORTGAGE30US
² California CRMLS
³ California CRMLS
⁴ Federal Reserve Economic Data (FRED), 30-Year Fixed Rate Mortgage Average, https://fred.stlouisfed.org/series/MORTGAGE30US
⁵ California Legislative Analyst’s Office, Housing Affordability Tracker, https://lao.ca.gov/LAOEconTax/Article/Detail/793
⁶ California Legislative Analyst’s Office, Housing Affordability Tracker, https://lao.ca.gov/LAOEconTax/Article/Detail/793
⁷ National Mortgage Professional, California Mortgage Originations, https://nationalmortgageprofessional.com/news/2022-was-bad-year-california-mortgage-originations
⁸ National Mortgage Professional, California Mortgage Originations, https://nationalmortgageprofessional.com/news/2022-was-bad-year-california-mortgage-originations
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¹⁰ Inman, LoanSnap License Revocation, https://www.inman.com/2024/10/22/california-is-2nd-state-to-revoke-loansnaps-license-this-month/
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¹⁵ The Truth About Mortgage, Industry Layoffs, https://www.thetruthaboutmortgage.com/a-list-of-recent-mortgage-closures-mergers-and-layoffs/
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¹⁹ U.S. News & World Report, Mortgage Rate Lock-in Analysis, https://money.usnews.com/loans/mortgages/articles/states-where-homeowners-are-locked-in-by-mortgage-rates
²⁰ U.S. News & World Report, Mortgage Rate Lock-in Analysis, https://money.usnews.com/loans/mortgages/articles/states-where-homeowners-are-locked-in-by-mortgage-rates
²¹ Orange County Register, Southern California Sales Analysis, https://www.ocregister.com/2025/08/21/record-high-home-prices-push-southern-california-35-below-average/
²² Orange County Register, Southern California Sales Analysis, https://www.ocregister.com/2025/08/21/record-high-home-prices-push-southern-california-35-below-average/
²³ Fannie Mae, Mortgage Lender Cost Analysis, https://www.fanniemae.com/research-and-insights/perspectives/mortgage-lenders-cite-talent-management-and-cost-cutting-top-priorities
²⁴ Fannie Mae, Economic Forecast, https://www.fanniemae.com/data-and-insights/forecast/economic-developments-may-2025
All sources last accessed on September 16, 2025
