It's safe to say that mortgage bankers have seen better days. On Wednesday, Citigroup (NYSE: C ) became the most recent major lender to announce layoffs in its residential real estate department.
According to The Wall Street Journal, the nation's third largest bank by assets is closing an office dedicated to refinancing existing home loans and laying off 120 employees in the process.
The office is located in Danville, Ill., and was opened "to handle the surge in demand for refinancing; however, due to the ongoing decline in refinance volumes, the excess capacity Danville provided is no longer needed," the bank noted in a statement.
With the announcement, Citigroup adds its name to a growing list of lenders that are sharply curtailing their mortgage operations in the face of waning demand. Since the beginning of May, the average rate on a 30-year conforming mortgage has rocketed higher by more than 100 basis points, leading to a 70% decline in applications to refinance existing home loans.
At an industry conference earlier this week, the chief financial officer of Wells Fargo (NYSE: WFC ) addressed this very issue.
We have an experienced management team in our mortgage business that's managed through many different refinance cycles ... As we always have, we will adjust the size of our mortgage business based upon production demand. When mortgage volume falls, some costs naturally decline immediately, such as commission expense. Other costs will have more of a lag to them like personnel costs.
So far this quarter, we've announced reductions of approximately 3,000 [fulltime employees], and we will continue to actively manage our capacity based on volume as we've done in the past.
Both JPMorgan Chase (NYSE: JPM ) and Bank of America (NYSE: BAC ) have taken strides in the same direction. Earlier this week, Reuters cited a source at Bank of America who said that the nation's second largest lender by assets will cut 2,100 positions from its mortgage business.
And speaking at the same conference as Wells Fargo's CFO, an executive at JPMorgan addressed the "the lag in times in terms of adjusting capacity and taking expenses out of the system," noting that "while we are being aggressive and taking the appropriate actions that you would expect us to take, this process will take some time to get through."
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