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JPMorgan to Trim Mortgage Banking Division, Slash 400 Jobs
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Joining other lenders in trimming mortgage banking unit, JPMorgan (JPM - Free Report) plans to cut nearly 400 positions in its consumer home lending division. This news was first reported by the Wall Street Journal.
The bank is laying off employees in three states — Florida, Arizona and Ohio. Particularly, the cities including Jacksonville, Phoenix, Cleveland and Columbus are expected to face the cuts. Notably, the layoffs account for nearly 2% of JPMorgan’s consumer home lending division.
Reasons Behind Layoffs
The primary reason for slashing workforce in the bank’smortgage banking division is the rising interest rates, which have resulted in increase in mortgage rates. This, in turn, has slowed down originations as well as refinancing activities.
To further compound this problem, lower number of homes available for sale, less affordability and reduced tax related incentives for home buyers seem to have added fuel to fire. Per the Mortgage Banking Association, loan applications for new home purchases declined 4.6% year over year in August 2018.
Also, rise in competition from non-bank lenders (accounting for nearly 50% of mortgage originations in the United States), which are less regulated, is one of the factors for curtailment in the mortgage banking unit.
JPMorgan spokesperson in an email statement said, “…When fewer people are struggling with their mortgages, and more people are using self-service channels, we can adjust staffing. Like all companies, we are making improvements to operate more efficiently and make slight adjustments to resources to best meet the needs of the market.”
Similar Layoffs by Other Banks
JPMorgan is not the only one facing the problem. Earlier in August, Wells Fargo (WFC - Free Report) announced its plan to cut more than 600 jobs in mortgage banking business.
Further, U.S. Bancorp’s (USB - Free Report) banking subsidiary — U.S. Bank — announced that it will cut 260 jobs, as it plans to close its Bedford mortgage and consumer banking office.In addition, MB Financial announced its plans this April to shut down its national mortgage origination business, which resulted in the layoff of nearly 600 employees at locations across Southeast Michigan.
Conclusion
Since the interest rates have started rising, JPMorgan’s mortgage banking business have started facing problems. Over the last three years (2015-2017), mortgage fees and related income have declined at a CAGR of 19.8%. The slowdown in origination is likely to continue in the quarters ahead, thereby hampering growth of mortgage banking business.
Nonetheless, with rise in demand for loans and improving economy, the bank is witnessing an increase in net interest income as rates rise. This along with JPMorgan’s plan to expand into 15-20 newer markets will further support revenue growth.
Shares of JPMorgan have rallied 21.6% over the past year, outperforming the industry’s rise of 8.5%.
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JPMorgan to Trim Mortgage Banking Division, Slash 400 Jobs
Joining other lenders in trimming mortgage banking unit, JPMorgan (JPM - Free Report) plans to cut nearly 400 positions in its consumer home lending division. This news was first reported by the Wall Street Journal.
The bank is laying off employees in three states — Florida, Arizona and Ohio. Particularly, the cities including Jacksonville, Phoenix, Cleveland and Columbus are expected to face the cuts. Notably, the layoffs account for nearly 2% of JPMorgan’s consumer home lending division.
Reasons Behind Layoffs
The primary reason for slashing workforce in the bank’smortgage banking division is the rising interest rates, which have resulted in increase in mortgage rates. This, in turn, has slowed down originations as well as refinancing activities.
To further compound this problem, lower number of homes available for sale, less affordability and reduced tax related incentives for home buyers seem to have added fuel to fire. Per the Mortgage Banking Association, loan applications for new home purchases declined 4.6% year over year in August 2018.
Also, rise in competition from non-bank lenders (accounting for nearly 50% of mortgage originations in the United States), which are less regulated, is one of the factors for curtailment in the mortgage banking unit.
JPMorgan spokesperson in an email statement said, “…When fewer people are struggling with their mortgages, and more people are using self-service channels, we can adjust staffing. Like all companies, we are making improvements to operate more efficiently and make slight adjustments to resources to best meet the needs of the market.”
Similar Layoffs by Other Banks
JPMorgan is not the only one facing the problem. Earlier in August, Wells Fargo (WFC - Free Report) announced its plan to cut more than 600 jobs in mortgage banking business.
Further, U.S. Bancorp’s (USB - Free Report) banking subsidiary — U.S. Bank — announced that it will cut 260 jobs, as it plans to close its Bedford mortgage and consumer banking office.In addition, MB Financial announced its plans this April to shut down its national mortgage origination business, which resulted in the layoff of nearly 600 employees at locations across Southeast Michigan.
Conclusion
Since the interest rates have started rising, JPMorgan’s mortgage banking business have started facing problems. Over the last three years (2015-2017), mortgage fees and related income have declined at a CAGR of 19.8%. The slowdown in origination is likely to continue in the quarters ahead, thereby hampering growth of mortgage banking business.
Nonetheless, with rise in demand for loans and improving economy, the bank is witnessing an increase in net interest income as rates rise. This along with JPMorgan’s plan to expand into 15-20 newer markets will further support revenue growth.
Shares of JPMorgan have rallied 21.6% over the past year, outperforming the industry’s rise of 8.5%.
Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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