Compelled by the dismal scenario in the mortgage market, one of the largest lenders in the country, Bank of America Corporation (BAC) is planning to lay off around 4000 employees. Other major lenders like JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) and Citigroup Inc. (C) announced layoffs in their mortgage business earlier this year.
BofA has already issued termination notice to 1200 employees in its mortgage fulfillment division that processes new mortgages and refinancing activities. Alongside, the company intends to evict another 3000 employees by the end of the year in its asset servicing division. These layoffs will mainly affect employees in Texas, California and Florida. The retrenchment is in addition to the 1700 job cuts announced in August.
BofA’s delinquent first mortgage loans of over 60 days decreased 19% sequentially during third-quarter 2013 to 398,000 loans and declined 57% year over year.
During the financial crisis, low interest rates enhanced the bank’s mortgage refinancing business. However, with the economic revival, rising interest rates made mortgage loans costly. Moreover with the economic improvement, real estates property prices rose, subsequently making it costlier for investors to invest in a property with a huge loan burden. Hence, new mortgage loans and refinancing activities are facing a setback.
It is worth mentioning that according to the Mortgage Bankers Association (MBA), the average interest rate on a prime 30-year mortgage stood at 4.39% last week, down from a high of 4.80 % in September but above the 3.59% rate in early May.
According to MBA, demand for refinancing has increased by one third, and overall mortgage applications have risen 18%, driven by the lower rates compared to September. However, despite the acceleration, applications waned 52% from the level in early May.
Stringent regulatory norms, volatile market conditions and limited scope for revenue growth have forced many banks to adopt severe cost cutting measures like layoffs and closures of business units worldwide.
Bank of America currently carries a Zacks Rank #3 (Hold).
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