Wells Fargo & Company
) announced 1,800 job cuts in its home-loan production business.
It has issued a 60-day notice to the concerned employees. The
recent layoffs follow the company's retrenchment of 3,000 jobs
earlier this quarter, including 2,300 job cuts in August across
the U.S. in its mortgage servicing segment.
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Wells Fargo, the largest mortgage originator in the U.S., had
recruited 11,406 mortgage loan officers earlier this year. 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 recent change in the interest rate environment is
challenging for Wells Fargo's mortgage business. As per experts,
though the increase in interest rates depicts an economic
revival, it will negatively impact consumers' demand for mortgage
refinancing. Therefore, mortgage lending is expected to slow down
for the rest of 2013.
Moreover, demand for new home purchases failed to compensate for
the reduced refinancing. Notably, Wells Fargo expects to
originate about $80 billion in home loans in the third quarter of
2013, down 29% sequentially.
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.
As per experts, in the forthcoming quarters the loan demand could
fall lower than what is expected. 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 Corporation
) that have shuttered offices catering to the mortgage business.
Following the recent slump in mortgage demand, Citigroup has shut
down its Danville office in Illinois, triggering the elimination
of 120 employees. Total job cuts due to declining mortgage demand
are anticipated to be around 2,200, including that of several
telephone sales agents.
Among other major banks, JPMorgan announced 19,000 job cuts by
the end of 2014. The majority of these will be in the bank's
Consumer & Community Banking segment. Additionally, BofA
plans to axe 2,100 jobs across its mortgage service segment, with
the shuttering of 16 offices by Oct 31.
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.
Recently, Wells Fargo decided to proceed with the sell off of
mortgage-servicing rights (MSRs) on $41 billion of
government-backed home loans. Wells Fargo is taking this step to
scale down its non-core operations and further strengthen its
Additionally, given the new capital regulations, servicing of
loans has become a costly affair for the banks. Therefore, Wells
Fargo's move is based on reduction in the mortgage business for
adapting new Basel III rules, thereby reducing risks. Currently,
Wells Fargo carries a Zacks Rank #3 (Hold).