Wells Fargo & Co (NYSE:WFC), the fourth largest bank in the United States in terms of assets, is cutting an additional 1,800 jobs in its mortgage business as the bank continues to suffer from a weak demand for refinancing, due to increasing interest rates.
Wells Fargo mortgage unit job termination
Last month, the bank terminated 2,300 employees in its home loan business. Prior to that, there were smaller numbers of workforce reductions. According to Tom Goyda, spokesperson of Wells Fargo & Co (NYSE:WFC), the total number of employees that were laid off earlier this quarter was 3,000. Goyda said the employees affected by the latest job cuts would receive 60-days notice.
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Wells Fargo’s Chief Financial Officer, Timothy Sloan, projected that the bank might be able to originate approximately $80 billion home loans in the third quarter, but the amount is 29 percent lower than its home loan origination during the previous quarter. The bank’s new home loan purchases are not enough to compensate its declining refinancing transactions.
Decline in mortgage refinancing
Franklin Codel, head of mortgage production at Wells Fargo & Co (NYSE:WFC) previously stated that mortgage refinancing represents 70 percent of the home lending volume in the United States over the past two quarters this year. The rate of mortgage refinancing already declined to around 50 percent, and he anticipated the trend would continue to go downwards.
As of March 2013, Wells Fargo & Co. has 11,406 home loan officers. It has 274,000 total employees in the first half of this year, and it is the largest employer among the banks in the United States.
Well Fargo to survive the economic crisis
Despite the decline of the mortgage business of Wells Fargo & Co (NYSE:WFC), its mid-cycle stress test showed that it has the ability to survive a severe economic crisis. The company has $1.4 trillion assets. Based on a nine-quarter test scenario, the banks’ Tier 1 common equity ratio could decline to 9.9 percent, higher than the minimum 8 percent recommended by regulators.
Over the past several months, there had been ongoing speculations and discussions regarding the potential tapering of the monthly bond-buying program of the Federal Reserve. Such speculations resulted to the increase in borrowing rates, which discouraged many homeowners to refinance their mortgages.
Surprisingly, the Federal Reserve maintained its $85 billion monthly stimulus due to concerns that rising interest rates could drag the slowly growing economy. Policy makers decided to wait for more economic progress before starting to taper the stimulus.