Bank of America said Thursday that it was cutting up to 4,000 mortgage jobs as fewer borrowers refinance, and fewer home loans go bad.
The layoffs are the latest round of job cuts at major banks as rising mortgage rates cut into demand for refinancing home loans. Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C) have announced thousands of layoffs among them in recent months.
At Bank of America (BAC), the third largest U.S. mortgage lender, about 1,200 employees were notified this week that they would be terminated. Most were full-time workers in the division that processes new mortgages, a spokesman said.
Before the end of the year, the bank is looking to cut another 2,800 jobs in the division that collects payments from borrowers who are behind, a spokesperson added. Most of the layoffs in that division will affect contractors.
Five years after the financial crisis, many of the loans that should never have been made have already gone bad, leaving banks with fewer troubled loans to manage.
For Bank of America, mortgage loans that were delinquent by more than 60 days fell by 94,000 to 398,000 in the third quarter. The bank expects a further decline to below 375,000 by the end of 2013.
Mortgage lending volume at Bank of America was down 11 percent in the third quarter from the second quarter.
The bank expects to make fewer home loans in the fourth quarter and will look to cut more mortgage jobs, Chief Executive Officer Brian Moynihan said during an Oct. 16 quarterly conference call with analysts.
The job cuts at the bank follow another round of layoffs -- in the third quarter, the second-largest U.S. bank eliminated more than 9,000 full-time positions, or 3.6 percent of its total staff.
Finance chief Bruce Thompson said on the Oct. 16 call that the reductions were concentrated in the unit that collects payments on home loans, the unit that makes new home loans, and in many of the bank's branches.
A majority of the latest cuts will affect employees based in California, Texas and Florida.
News of the layoffs was first reported by the Wall Street Journal.
Higher Rates Slow Refinancing
Rising interest rates have weighed on mortgage refinancing at banks since the spring. The average interest rate on a prime 30-year mortgage stood at 4.39 percent in the week that ended Friday, according to the Mortgage Bankers Association, down from a high of 4.80 percent in September but above the 3.59 percent rate in early May.
With rates having recently come down from their September highs, demand for refinancing has increased by one third, and overall mortgage applications are up by 18 percent, according to MBA data. But even with that pick-up, applications are down by 52 percent from their level in early May.
With these declines, Wells Fargo, the largest U.S. mortgage lender, said on Oct. 17 that it was cutting 925 mortgage jobs. That is in addition to the 5,300 Wells Fargo mortgage employees who were notified that they would be laid off in the third quarter.
Bank of America was the third-largest U.S. mortgage lender in the first six months of 2013, making 5.2 percent of all U.S. home loans, following JPMorgan Chase, according to Inside Mortgage Finance, an industry publication.