The recovering housing market has been an enormous source of revenue for Wells Fargo (NYSE:WFC). The bank became the largest mortgage lender in the United States following the financial crisis, responsible for nearly one in three home loans in 2012, beating out Bank of America (NYSE:BAC) for the top spot. Wells Fargo has originated more than $100 billion in new mortgages each quarter since the fourth quarter of 2011, and logged an average gain on sale margin of about 2.28 percent.
But after nearly two years of strong gains in its mortgage business, the tide appears to be receding. Interest rates have increased dramatically over the past few months and as a result mortgage origination and refinancing activity has generally been on the decline. The average contract interest rate for a 30-year fixed-rate mortgage edged down slightly last week from 4.80 percent to 4.75 percent, but is still well above the average commitment rate of 3.45 percent in April.
This increase in rates and the subsequent decrease in mortgage-business activity has had a material impact on payrolls at Wells Fargo. The bank, with nearly 275,000 employees, told Bloomberg on Wednesday that it would be laying off an additional 1,800 people from its mortgage origination business. The cuts are in addition to 3,000 previously announced layoffs.