Following the recent slump in mortgage demand, Bank of America Corporation (BAC - Free Report) , also known as BofA, plans to axe 2,100 jobs across its mortgage service segment, with the shuttering of 16 offices by Oct 31. As per Bloomberg, the news has been confirmed by internal sources well acquainted with the recent developments in BofA.
During the financial crisis and the initial phases of economic recovery, banking giants such as BofA capitalized on low interest rates that boosted their mortgage refinancing business. However, with the economic revival gaining momentum, the scenario has undergone a change.
On analyzing, we understand that 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.
As per experts, in the forthcoming quarters, the loan demand could fall lower than what is expected. Hence, large mortgage lenders such as BofA are striving to minimize losses by adopting stringent cost-cutting measures.
Other banks that resorted to job cuts to restrict further slide in their mortgage business include Wells Fargo & Company (WFC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) .
Last month, Wells Fargo announced 2,300 job cuts across the U.S. in its mortgage servicing segment. Moreover, earlier this year, 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.
BofA currently carries a Zacks Rank #3 (Hold). A better-performing bank is BankUnited, Inc. (BKU - Free Report) , which has a Zacks Rank #1 (Strong Buy).