Bank of America Corp (NYSE:BAC) has announced plans to cut 2100 jobs and close 16 offices as the mortgage refinancing business drys up. The rise in mortgage rates across the United States and the subsequent slow down in mortgage refinancing was cited by the company as the reason for the job cuts and office closures.
The news was first reported by Bloomberg, who sourced people familiar with the matter. According to the article, Bank of America Corp (NYSE:BAC) plans to cut 1,500 staff who worked at processing mortgages, 400 who worked at a call center in Cleveland and 200 people who worked with overdue mortgages.
Bank of America (BAC) job cuts
Bank of America Corp (NYSE:BAC) is not the first company to lay off staff because of the change in the mortgage industry. Wells Fargo & Co (NYSE:WFC) announced that it was cutting 2300 jobs in its mortgage unit at the end of August. With two of the biggest commercial banks in the United States laying off staff, it’s likely that others will follow suit.
JPMorgan Chase & Co (NYSE:JPM) is rumored to be planning the redundancy of as many as 15,000 of its employees who work in the mortgage business. The lay offs at Bank of America reflect wider changes across the mortgage business in the face of rising interest rates. The changes are startling to some because housing in the United States appears to be recovering, but new home loans are not the problem at Bank of America Corp (NYSE:BAC).
Mortgage business problems
Mortgage rates across the United States are up and the boom in mortgage refinancing is ending. Bank of America Corp (NYSE:BAC) revealed that more than four fifths of second quarter mortgages taken on by the company weren’t for new homes, they were taken by people refinancing already owned properties.
The low interest rate environment of the last year gave an opportunity to consumers looking to borrow on their homes in order to afford purchases. The rise in interested rates as investors, and commercial banks, expect the Federal Reserve to move the base interest rate up through the end of 2013 has put an end to the cheap money available on the mortgage market.
The changes in interest rate do not seem to be effecting the rebound in the housing market, though that could change in the months ahead. For now, however, the housing market looks good.