By Octavio Nuiry
For the last few years, mortgage origination and refinancing has been the dominant revenue stream for the TBTF banks.
But now the go-go years may be over.
The banking sector is reeling with layoffs due to a falloff in mortgage origination and refinancing activity.In September the Mortgage Bankers Association noted a 70 percent decline in loan refinancing and 15 percent falloff of purchase loan origination. Although the MBA reported an uptick in origination and refinancing since then, the overall trend is downward — and the banks know it.
This has triggered a wave of more than 7,000 layoffs in the U.S. banking sector this year, reports The Wall Street Journal. Citigroup has laid off 1,000 workers. Wells Fargo, which originates one out of three mortgages in the U.S., has slashed 4,000 mortgage jobs in recent months, while Bank of America will cut about 2,100 servicing jobs, according to American Banker.
Recent spikes in interest rates have damaged the home-lending business. Moreover, declining affordability, a stagnant job market and flat consumer income are also fueling a decrease in loan origination. Add to these woes a real estate market plagued by Wall Street participation, government intervention and an industry reeling from onerous legislation and regulation, and the future of home-lending is anything but certain.
Banks started getting jittery about the loan origination market when the Federal Reserve hinted on September 18 that the central banking system might wind down their quantitative easing policy. Just the mention that the Fed planned to “taper” its bond buying policy led to a swift and steep spike in interest rates over the last few months.
The rate on the benchmark 10-year Treasury went from 2 percent at the end of May up to nearly 3 percent in September, according to the U.S. Treasury. Mortgage rates have similarly shot through the roof, causing applications to refinance existing home loans to plummet 70 percent since their peak in May. A 30-year fixed rate mortgage was 4.32 percent for the week of Sept. 26, up from a year ago when it was 3.40 percent, according to Freddie Mac.