Following the recent slump in mortgage demand, Citigroup Inc. (C - Free Report) announced 1,000 job cuts in its mortgage business units. The job cuts will take place primarily in Las Vegas, Nev. and Irving, Texas. This move follows the banking major’s shuttering of its Danville office in Illinois, which resulted in service termination of 120 employees.
Through this move, Citigroup joins other banking giants like Wells Fargo & Company (WFC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Bank of America Corporation (BAC - Free Report) that have shut down 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. declined in the previous week, hitting the lowest level in the past 5 years.
An increase in interest rates led 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).