The recovering housing market has been an enormous source of revenue for America’s major financial institutions. Wells Fargo (NYSE:WFC) emerged from the recession as the nation’s No. 1 mortgage originator, beating out Bank of America (NYSE:BAC) for the top spot with more than $100 billion in new mortgage loans each month since the fourth quarter of 2011.
But after nearly two years of strong gains in the mortgage sector, 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 increased to 4.46 percent in August, up from 4.37 percent in July and well above the 3.66 percent average in 2012.
The rising rates have lowered demand for new mortgages and refinancing, resulting in layoffs at many major financial institutions. Most recently, Citigroup (NYSE:C), the third-largest U.S. bank by assets and the sixth-largest mortgage lender in the first half of 2013, joined the ranks of those announcing job cuts. Reuters reports that Citigroup will lay off about 1,000 jobs from its mortgage division.
Most of the layoffs at Citigroup will be in the sales, underwriting, and fulfillment department. This is in line with most of the layoffs seen at Wells Fargo and within the mortgage division at Bank of America. Jobs are also being axed in the department that deals with defaults. Rising home prices and a stabilizing economy means fewer people defaulting on mortgages, and therefore less work for that division.
Bank of America, which previously targeted restructuring and cost-savings layoffs of up to 30,000 people, recently announced 2,100 additional layoffs within its mortgage servicing segment. Wells Fargo recently said it would be laying off an additional 1,800 people from its mortgage origination business. This new round of job cuts builds on 3,000 layoffs previously announced.