Following the recent slump in mortgage demand, Citigroup Inc. (C) has shut down its Danville office in the state of Illinois. As a result, the services of 120 employees were terminated. The total job cuts due to declining mortgage demand are anticipated to be around 2,200, which will include many telephone sales agents.
Through this move, Citigroup joins other banking giants like Wells Fargo & Company (WFC), JPMorgan Chase & Co. (JPM) and Bank of America Corporation (BAC) that have shuttered offices catering to the mortgage business.
During the financial crisis and the initial phases of economic recovery, these banks capitalized on the low interest rates that boosted their mortgage refinancing business. However, with the economic revival gaining momentum, the scenario has undergone a change. According to Bloomberg, mortgage applications in the U.S. fell the previous week, hitting the lowest level in the past 5 years.
Citigroup’s Danville business center was established early in 2012 to handle the rise in demand for refinancing. However, an increase in interest rate leads to mortgage loans becoming costlier. Further, with the overall economic improvement, the prices of real estate properties are bound to rise. Therefore, investors have to buy relatively costlier property with loans that come at a higher price. Notably, since Sep 2012, a rise in borrowing expenses has slowed down mortgage refinancing by almost 70%.
In the forthcoming quarters, the loan demand could fall lower than what is expected. Hence, large mortgage lenders are striving to minimize losses by adopting stringent cost-cutting measures. Last month, Wells Fargo announced 2,300 job cuts across the U.S. in its mortgage servicing segment.
Alongside, JPMorgan announced 19,000 job cuts by the end of 2014. The majority of these will be in the bank’s Consumer & Community Banking segment. Additionally, Bank of America plans to axe 2,100 jobs across its mortgage service segment, with the shuttering of 16 offices by Oct 31.
Currently, Citigroup carries a Zacks Rank #3 (Hold).