According to a Bloomberg report, Bank of America Corp. (BAC) has cut 450 mortgage jobs. This is part of BofA’s ongoing strategy to reduce its workforce in the mortgage banking division.
Employees in BofA’s West Coast offices were the target of retrenchment this time. The jobs of the aforesaid number of employees were terminated with immediate effect. These employees will however, receive two months’ pay and will be eligible for severance pay in the future. Notably, the company is hiring in its other wings, thereby giving a chance to these employees to find jobs in the same.
BofA has been facing lower demand for new loans as rising interest rates have made loans costlier. Further, with gradual improvement in the economic scenario, the prices of real estate properties are likely to increase, which will make it costlier for investors to invest in a property with a huge loan burden.
Hence, new mortgage loans and refinancing activities are facing a setback. In 2013, BofA’s mortgage banking revenues declined nearly 18% year over year.
Further, as per the latest data available from the Mortgage Bankers Association (MBAIF), mortgage applications have remained sluggish for the week ended Feb 7. The Market Composite Index, which measures total loan application volume, fell 2%. Also, the Refinance index dipped 0.2% and the Purchase Index declined 5%.
Going forward, we believe that the loan demand could be lower than what is being expected. Hence, large mortgage lenders such as BofA, JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) and Citigroup Inc. (C) are striving to minimize losses by adopting stringent cost-cutting measures.
Currently, BofA carries a Zacks Rank #3 (Hold).