A recent spike in interest rates has caused a decline in refinancing activity, a drop-off that has curtailed a two-year refinancing wave that started in 2011 and led to the nation’s largest banks shedding thousands of mortgage jobs.
Analysts estimate that the banking industry cut 10,000 mortgage-related jobs in the third quarter of 2013. Citigroup Inc. cut 1,100 jobs, including 760 in Las Vegas.
Bank of America Corp. laid off 2,100 employees, while Wells Fargo &Co. slashed 5,300 jobs. JPMorgan Chase &Co. is also reducing its mortgage staff, eliminating 2,000 positions in the last three months.
The industry reached peak employment of 505,000 in February 2006. Since its peak, the mortgage industry has lost 210,000 jobs, and in July employed 295,000, figures released by the Mortgage Bankers Association show.
“Refinancing has constituted the bulk of the mortgage business,” Bankrate.com senior analyst Greg McBride said. “When interest rates go up, the demand for refinancing drops. It’s a very cyclical business.”
The mortgage industry has changed over the past two decades as refinancing has gained in popularity and profitability. Almost 20 years ago, 80 percent of mortgage applications nationwide were for new-home purchases; now that figure is closer to 30 percent, with the rest being refinancings.
The refinance share of mortgage activity was 66 percent, the Mortgage Bankers Association reported in its weekly survey for the week ended Oct. 11. The average interest rate for a 30-year fixed-rate mortgage was 4.46 percent.
“They were 3.5 percent in May,” McBride said. ”We spent a full year under 4 percent. That’s why there are a lot of people walking around with a rate that begins with a three.”
But as refis fade, home inventory is swelling and more homeowners are putting their homes up for sale.
“It’s because the economy is getting better,” McBride said. “That better economy is why people are buying homes.”
Most of the 760 affected CitiMortgage employees in Las Vegas will exit their positions by Dec. 20, said Mark Rodgers, director of Citi public affairs. Some will remain until March.
Rodgers said Citi was not announcing projected cost savings from the layoffs. Citi expects to keep 350 consumer operations and technology jobs in Las Vegas.
Wells Fargo has been trimming jobs in its home-loan division as declining refinance business has reduced mortgage banking income. The nation’s largest home lender said its mortgage banking income in the third quarter was down 43 percent to $1.6 billion.
Wells Fargo reported that residential mortgages fell to $80 billion from $112 billion in the second quarter and that applications fell to $87 billion from $146 billion. There was $35 billion in the application pipeline at the end of the third quarter compared with $63 billion as of June 30.
“As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses,” Wells Fargo Chief Financial Officer Tim Sloan said.
Wells Fargo employs 400 people at four offices in Southern Nevada. Tony Timmons, a spokesman with Wells Fargo in Las Vegas, said any plans to increase staffing locally are market-driven.
Timmons said as a result of “less mortgage refinancing volume throughout 2012 and early 2013,” the bank has laid off 30 employees locally. Wells Fargo is eliminating 1,800 jobs in its mortgage production business, which is on top off 3,000 earlier this year.
In its third-quarter earnings report, Bank of America said cut more than 9,200 jobs during the third quarter, or about 3.6 percent of the workforce, bringing full-time employees to 247,943.
In a conference call Wednesday, Bank of America Chief Financial Officer Bruce Thompson cited reductions in home lending and branches and said that there should be more layoffs. Bank of America is expected to eliminate 2,100 jobs and close 16 mortgage offices.
In Nevada, the bank has 2,000 employees in 50 loan centers. As of the last round of reductions on Aug. 23, there were no layoffs or closings of centers in Nevada, Bank of America spokesman Terry Francisco said.
JPMorgan Chase has not reduced its staff in Southern Nevada. But the bank has slashed 760 mortgage-related jobs in Phoenix since August, along with hundreds of jobs in Southern California.
In February, Chase disclosed plans to eliminate 13,000 to 15,000 jobs by 2014 to save about $3 billion. Chase has about 30 mortgage bankers in Las Vegas.
Banks and mortgage companies have typically divided mortgages into those for refinancing existing-home loans and those for home purchases.
And some local companies are doing fine with new-home purchases.
“We are thriving,” said Brian Maier, a mortgage broker and owner of Raintree Mortgage Services in Las Vegas. “The local firms that took part in the refinancing boom are struggling … cutting employees to keep their doors open.”
Maier said 70 percent of Raintree’s business has been home purchases. He admitted his firm “took the low-hanging fruit within the refinance business,” but the downturn is having little effect.
Maier said five months ago there was limited inventory; now there are homes for sale.
As of June 30, refinance mortgage production was $332 million, down 12.9 percent from $381 million at the end of the first quarter, an analysis by Inside Mortgage Finance shows.
Mortgage interest rates have been rising since the Federal Reserve announced earlier this year it soon might begin pulling back on its stimulus program. The Fed has been spending $84 billion a month on a bond-buying program, which had been keeping interest rates at record lows.
Contact reporter Chris Sieroty at email@example.com or 702-477-3893. Follow @sierotyfeatures on Twitter.