NEW YORK ( TheStreet) -- When Wells Fargo's (WFC - Get Report) head of mortgage origination Franklyn Codel said at a conference in May that the company was staying on top of its staffing levels, he wasn't kidding.
Citing an internal company memo, Reuters late on Wednesday reported the nation's leading mortgage loan originator would cut 2,300 jobs because of a decline in refinancing activity, brought about by an increase in long-term interest rates.
The Mortgage Bankers Association had said early on Wednesday that its Refinance Index had declined 62% from its peak in May. The MBA also said that mortgage loan applications for the week ended Aug. 16 were down 4.6% from a week earlier.
The average interest rate for a 30-year fixed-rate conforming mortgage loan with a balance of $417,000 or less increased to 4.68% from 4.56% just a week earlier, with points paid at closing, including origination fees, increasing to 0.42 from 0.39, according to the MBA. The above figures are for loans with loan-to-value ratios of 80 percent.The increase in mortgage interest rates and decline in gain-on-sale margins for newly originated loans, has been driven by an overall increase in long-term rates, as investors anticipate a lowering of monthly bond purchases by the Federal Reserve. The Fed has been buying a net $40 billion in long-term mortgage-backed securities and $45 billion in long-term U.S. Treasury bonds each month since last September, in an effort to hold long-term rates down. But the market always looks ahead, and has pushed the yield on 10-year U.S. Treasury bonds up to 2.87% Wednesday, from 1.70% at the end of April. Wells Fargo reported second-quarter mortgage banking revenue of $2.802 billion, increasing slightly from $2.794 billion the previous quarter, but declining from $2.893 billion a year earlier. Some other large banks had reported larger declines during the second quarter, but Wells Fargo tends to lag industry reporting by one quarter, since it books revenue at the time a loan is actually made, rather than at the point a new loan's interest rate is locked. So investors can be pretty sure to see the bank report a significant decline in third-quarter mortgage revenue.