Wells Fargo & Company
) announced 700 job cuts in its home lending business. It has
issued a 60-day notice to the concerned employees. The recent
layoffs come on the heels of the company's retrenchment of 250
jobs last month, bringing the total tally to around 6,900 since
Wells Fargo, the largest mortgage originator in the U.S., had
recruited 11,406 mortgage loan officers earlier in 2013. The
prevalent low interest rates then were favorable for homebuyers
and the company had intended to improve its top line by
augmenting home loans.
However, the change in the interest rate environment is
challenging for Wells Fargo's mortgage business. Though the
increase in interest rates depicts an economic revival, it has
negatively impacted consumers' demand for mortgage refinancing.
Therefore, mortgage lending has slowed down in the second half of
2013 and is expected to continue in the first quarter of 2014.
Moreover, demand for new home purchases has seasonally declined.
Analysis reveals that an increase in interest rate leads to
mortgage loans becoming costlier. Further, with the overall
economic improvement, the prices of real estate properties are
bound to rise. Therefore, investors have to buy relatively
costlier property with loans that come at a higher price.
Notably, in 2013, mortgage banking income declined 25% year over
year. Further, mortgage loan originations plunged to $351
billion, down 33% year over year.
Therefore, the company has resorted to layoffs in its mortgage
business. It is majorly making job cuts in back office operations
comprising processing and fulfillment of mortgage applications.
However, loan officers originating loans directly to home owners
are mostly retained. Wells Fargo is also working to accommodate
most of the terminated employees in other operational areas of
In the forthcoming quarters the loan demand could fall lower than
the expected level, but the pace is anticipated to slow down.
Hence, large mortgage lenders such as Wells Fargo are striving to
minimize losses by adopting stringent cost-cutting measures.
Through this move, Wells Fargo joins other banking giants like
JPMorgan Chase & Co.
Bank of America Corp.
) that have shuttered offices catering to the mortgage business.
In the current market scenario, many banks are finding it
difficult to cope with the volatile conditions, in which the
scope for revenue growth is limited. Hence, the banks are
resorting to extreme cost-cutting measures comprising layoffs and
closures of business units worldwide. Currently, Wells Fargo
carries a Zacks Rank #3 (Hold).
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