Citigroup (C) plans to lay off an estimated 2,200 workers within its mortgage business by early next year, as rising mortgage rates have hurt mortgage lending and refinancings, executives at the bank tell FOX Business.
The layoffs could come at mortgage units across the country, Citi sources said, adding the bank is closing in on deciding on a final number.
Freddie Mac reports the average for a 30-year fixed-rate home loan is now over 4.6%, versus less than 3.5% before the summer. The sudden, sharp rise in mortgage rates has caused a drop in consumer demand, and is helping to push bank workers out the door as bank executives fear mortgage lending will continue to dry up.
Factoring in Citigroup’s expected job cuts, the nation’s biggest mortgage lenders, Wells Fargo, Bank of America and JPMorgan Chase, are now expected to lay off 22,300 workers in their mortgage units in coming months.
When asked for comment, Mark Rogers, Citigroup’s director of communications, told FOX Business: “We recently announced the closing of the CitiMortgage Danville, Illinois, facility due to decreased refinance volumes, and discontinued some telesales positions. We have nothing further to announce at this time.”
Rogers also noted Citigroup chief executive Michael Corbat's comments in the bank's second quarter earnings call with Wall Street: “In the U.S., although the housing market is gaining strength, the lower volume of mortgage refinancing will impact our consumer business. We're already taking steps to make sure the mortgage business is sized correctly."
In April, Citigroup’s chief financial officer, John Gerspach, told Wall Street analysts that Citigroup is "not looking to significantly grow share in mortgages," other than through making loans to its existing retail bank customers.
An email this past summer from a top executive at CitiMortgage signaled layoffs were coming. “General conditions in the mortgage market aren't as robust as they were six months ago…[we] will need to optimize our structure," the executive said in an email to workers last June.
Peter Boockvar, managing director at the Lindsey Group, notes: “Due to another multi-year high in mortgage rates, refi applications continue to collapse. The MBA said refis fell 20.2%, to the lowest level since June 2009 and are now off 70% since the recent May peak when [Federal Reserve chairman Ben] Bernanke mentioned the possibility of cutting asset purchases,” the central bank’s purchases of debt.
Citigroup replaced its CitiMortgage head Sanjiv Das with its private bank head Jane Fraser earlier this year. Fraser is winning praise for moving assertively to rightsize CitiMortgage. Fraser has been talked about as a potential future CEO of Citigroup, is one of the most senior women at the bank, and is considered “extremely intelligent and a leader,” insiders tell FOX Business.
Citigroup hired Fraser in 2004, and she was its global head of strategy and mergers and acquisitions before taking over private banking in 2009. Das had worked with former Citigroup chief executive Vikram Pandit at Morgan Stanley.
In naming Fraser head of the private bank, Citigroup chief executive Michael Corbat said in a company memo that: “Jane transformed the business, recruiting and developing top talent who helped the business deliver strong results and industry-leading efficiency ratios."
In March, Corbat laid out an efficiency ratio target of the mid-50% range for Citi by 2015 in a presentation at the Citi Financial Services Conference. The efficiency ratio at Citi, which shows how much a bank spends to generate revenue, rose to a costly 72% in 2012, up from 65% in 2011. The securities and banking unit had the worst efficiency ratio out of the bank's divisions, at 64% in 2012.
Corbat said: "We will continue to focus on gaining share in equities, fixed income and investment banking but we will remain vigilant on headcount and compensation. If the business does not execute, we will not be afraid to take further action."
Late last year, Corbat announced plans to cut costs, including more than 11,000 jobs. Corbat has also won praise on Wall Street as a trusted banker who is working aggressively to fix Citigroup, which has been struggling over the last several years and was the recipient of one of the country’s biggest federal bailouts.
Rising mortgage rates are slamming bank workers across the board. JPMorgan Chase is expected to wind down about 19,000 jobs over the next two years in states like California, Texas, New York, New Jersey, and Florida.
The bulk of the cuts, about 15,000, are coming at JPMorgan Chase’s mortgage unit, which had grown to roughly 50,000 workers from a pre-financial crisis roster of 20,000 due to the need for more people to process defaulted mortgages.
The bank said it hopes to “redeploy” workers jobs in other parts of the company. JPMorgan has also been shutting down consumer banking units at branches across the country, resulting in about 4,000 job cuts.
Bank of America, the nation’s second largest bank, is expected to lay off about 2,100 workers and close 16 office by the end of next month, Bloomberg News reported. The cuts include 1,000 layoffs announced at two locations in Ohio at the end of August. Mortgage offices in California, Virginia, Washington, and Texas are also affected, Bloomberg News reported
The nation’s largest mortgage lender, Wells Fargo, has also announced more than 3,000 job cuts in the past two months in its mortgage fulfillment division. Wells Fargo has disclosed its mortgage loans will drop about 30% in the current quarter versus the second quarter, when mortgage rates were still low.
Elizabeth MacDonald joined FOX Business Network (FBN) as stocks editor in September 2007 and is the author of Skirting Heresy: The Life and Times of Margery Kempe (Franciscan Media, June 2014).
Follow Elizabeth MacDonald on Twitter @LizMacDonaldFOX.