Wells Fargo & Co (NYSE:WFC), the largest mortgage lender in the United States, will cut 2,300 jobs in its home loan business because fewer customers are refinancing as interest rates rise, according to an internal memo reviewed by Reuters.
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The cuts would represent around 3.3 percent of the bank's consumer lending employees, the bank said. Although the bank does not disclose how many of its staff work in home loans specifically, Wells Fargo had over 11,000 mortgage loan officers on its payroll at the end of March.
Mortgage refinancing made up more than 70 percent of U.S. home lending volume in the first half of 2013, but it has fallen to around 50 percent of lending and could fall further in coming months, Franklin Codel, Wells Fargo's head of mortgage production, said in the memo.
"We've had to recalibrate our business to meet customers' needs, and to ensure we're operating as efficiently and effectively as possible. Unfortunately, displacements within our team are necessary," Codel said.
The bank had expected higher lending rates to cut into its mortgage business. Chief Financial Officer Tim Sloan said on a July 12 conference call with analysts that rising mortgage rates would likely end the bank's streak of seven consecutive quarters of making more than $100 billion of home loans.
"We just don't think that we are going to see $100 billion of mortgage volume, given the current rates today, in the third quarter," Sloan said. "We will need to go ahead and make some adjustments."
At Wells Fargo there is typically a 60 to 90 day lag between refinancing volume slowing and the ability to cut mortgage production costs, according to an August 6 report from Goldman Sachs Global Investment Research, which cited conversations with top Wells Fargo executives.
The 2,300 employees whose positions are to be eliminated received their 60-day notice on Wednesday, a Wells Fargo spokeswoman said in an email.
News of the layoffs was first reported by Bloomberg News.
Wells Fargo made $112 billion in mortgage loans in the second quarter, down from $131 billion from the same quarter in 2012, but up from $109 billion in the first quarter.
The San Francisco-based bank extended more than one out of every five home loans in the second quarter and collected payments on nearly as many, according to Inside Mortgage Finance, an industry publication.
Wells Fargo executives have stressed that the bank has a diversified business model and that its fortunes are not solely determined by what happens in the mortgage market.
"The mortgage horse has been a big, strong horse. We've got 89 other horses that are going to be able to grow," Sloan said on the July 12 call, referring to Wells Fargo's stagecoach logo.
(Reporting by Peter Rudegeair; Editing by Dan Grebler)