BofA Cuts Jobs as Mortgage Slump Traps JPMorgan, Wells FargoHugh Son and Dakin Campbell
Mortgage lenders including Wells Fargo & Co. and JPMorgan Chase & Co. that feasted on refinancings as interest rates reached all-time lows are now warning that the drop in demand may be steeper than expected.
Even Bank of America Corp., which fell to fourth in U.S. mortgages last year as it scaled back after buying Countrywide Financial Corp., is reducing capacity further as surging interest rates crimp demand. The Charlotte, North Carolina-based firm is eliminating 2,100 jobs and closing 16 offices by Oct. 31, said two people with direct knowledge of the plan.
Home lenders are tempering forecasts after interest rates rose amid signs the Federal Reserve may scale back stimulus efforts. Wells Fargo, the top U.S. home lender, said yesterday that third-quarter originations may fall 29 percent to $80 billion. JPMorgan, ranked No. 2, said it expects to lose money on home lending in the second half as volumes drop as much 40 percent from the year’s first six months.
“There was speculation, I’m sure by Wells but a lot of other people, that there would be second-quarter momentum that would carry through to the third quarter,” said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Maryland. Yesterday’s comments and Bank of America’s job cuts show “that some of that stuff appeared very quickly in terms of people dropping out of the market. That clearly doesn’t bode well.”
Interest rates climbed after Fed Chairman Ben S. Bernanke told Congress on May 22 that the central bank may scale back the pace of its $85 billion of monthly purchases of mortgage bonds and Treasuries if the U.S. economy shows sustained improvement. The cost of a 30-year fixed home loan rose to 4.57 percent last week from 3.35 percent in May.
Wells Fargo Chief Financial Officer Tim Sloan’s forecast for $80 billion in originations was darker than his July prediction that the San Francisco-based firm wouldn’t post an eighth straight quarter of $100 billion or more. The bank entered the third quarter with $63 billion of unclosed mortgages.
The lender’s gain-on-sale margin, what it gets from selling loans to be packaged into securities and sold to investors, will narrow to about 1.5 percent in the quarter, Sloan said yesterday at an investor conference in New York. That would be the lowest since 2011’s third quarter, when it was 1.34 percent, the presentation showed.
An increase in lending for home purchases won’t be enough to replace a drop in refinancings, JPMorgan CFO Marianne Lake said in her presentation. The bank’s pretax-profit margins and income on mortgage lending will be “slightly negative” in the third and fourth quarters as the firm takes time to adjust its fixed costs.
“Although this may have happened sooner than we had expected, we did contemplate a more normal rate environment in our longer-term targets,” she said.
Wells Fargo and JPMorgan reported record profits last year, aided by refinancings and a rebound in sales and prices. Now, mortgage lenders are paring staff as higher interest rates cast doubt on how much the housing market will improve. Wells Fargo plans more than 2,300 job cuts and New York-based JPMorgan may dismiss 15,000 by 2014.
JPMorgan rose 1.5 percent at 10:16 a.m. in New York trading, Wells Fargo climbed 1.3 percent and Bank of America advanced 1.1 percent.
About 1,500 of the Bank of America workers set for termination helped process home loans, said one of the people, who asked not to be named because, while affected employees were notified Aug. 29, the scope of the plans hadn’t been publicly announced. About 400 worked in a suburban Cleveland call center, and 200 dealt with overdue mortgages, the person said.
The changes “reflect our ongoing efforts to streamline our facilities and align our cost structure with market realities,” said Terry Francisco, a spokesman for the bank.
The lender targeted three offices in California as well as locations in Virginia, Washington, Texas and Ohio, said the people, who cited the company's discussions with employees last month. Some will be offered work elsewhere in the firm, the people said. Bank of America’s staff totaled more than 257,000 at mid-year.
Chief Executive Officer Brian T. Moynihan, 53, is again scaling back operations gained in the 2008 takeover of Countrywide, once the biggest U.S. mortgage lender. After shuttering reverse-mortgage and correspondent-lending units in 2011, the firm targeted smaller ex-Countrywide offices to close or consolidate, said one of the people.
Regulators and lawmakers blamed Countrywide for lax standards and predatory lending that contributed to the housing bubble and collapse, which has cost Bank of America more than $45 billion. Countrywide was acquired under Moynihan’s predecessor, Kenneth Lewis.
“We’re pretty much through the refi boom, and we don’t know yet what the purchase business will look like,” said Nancy Bush, founder of NAB Research LLC, a bank research firm in New Jersey. “Countrywide was everywhere, so Bank of America’s particular challenge is to go from this hot-mess mortgage company to a rational one.”
The cuts will leave about 25 mortgage offices, said one of the people. The suburban Cleveland site, which had 1,000 employees, lost the most people, said the person. That part of the reduction was reported last month by the Plain Dealer.
Most of the dismissals are in addition to the 30,000 announced in 2011 as part of Project New BAC, Moynihan’s plan to reduce expenses, one of the people said.