Mortgage lenders across the United States are reducing their workforce by thousands of workers, as the once-bullish refinancing space has since slipped following the sudden spike in mortgage rates this summer.
These financial institutions include, but are not limited to Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFM), all have made significant reductions to their mortgage workforce due to a sharp decline in the number of individuals refinancing their home loans for lower rates and payments. Mortgage rates, which were once at 3.40 percent as of the early part of May, 2013, have since surged by more than one percentage point. This has resulted in a cataclysmic decline in refinancing activity, as those planning to refinance their existing homes, or those looking to buy a new home, have ended up “sitting the fence” as they hope for rates to go down.
Refinancing volume, according to statistics from the Mortgage Bankers Association, has dropped by almost 70 percent since peaking in May.
The trend of mortgage department layoffs has particularly affected the state of Florida, one of the hardest-hit states during the housing crisis of a few years ago. According to the Herald Tribune, JPMorgan Chase will be letting go of 840 mortgage employees in Florida, 650 of these assigned to the Tampa area. The workers will be terminated in October or November, and some of these, according to the report, had been assigned to consumers having difficulty in paying their home loans down. The borrowers in question had mostly used refinancing or other related tools in order to stay in the same home, or successfully sell their property and move elsewhere.
Also, Wells Fargo had layoff sent notices to 112 Florida-area workers, soon after the bank announced that it will lay off another 1,800 workers following the 2,300 it let go in August. Bank of America, on the other hand, has announced at least 2,000 layoffs in its mortgage arm, including 205 or more in Florida.
Each of the banks mentioned above have used “right-sizing” or other related parlance to describe the reasons why they are letting go of so many employees. An example would be Bank of America’s statement regarding its recent round of layoffs – “These actions also reflect our ongoing efforts to streamline our facilities and align our cost structure with market realities, including declining refinance volume resulting from rising interest rates.”
Aside from a precipitous decline in mortgage activity, some of the above banks have had other issues that have behooved them to “right-size” their mortgage businesses. Chase, for instance, had recently agreed to settle to the tune of $920 million in conjunction to the controversial “London Whale” trading fiasco.
As far as the “what’s in it for me” goes for consumers, statistics point to reduced consumer sentiment in many parts of America following the layoff announcements. According to the Herald Tribune, consumer sentiment in Florida dropped to its lowest point in six months in September. In Florida, individuals felt less confident in three of five survey metrics, with the only improved metric being whether it would be an ideal time to buy a major household item or not.