NEW YORK (AP) — Wells Fargo, the nation's second-largest bank by deposits, saw a slowdown in its mortgage business last quarter and may have to cut jobs if demand continues to weaken.
Tim Sloan, Wells Fargo's chief financial officer, said mortgage originations have slowed considerably since May, citing the spike in interest rates over the summer. The comments came during a presentation to analysts in New York.
Due to the decrease in mortgage volume, San Francisco-based Wells Fargo now expects to do $80 billion in mortgage originations in the third quarter, compared with the $112 billion the bank originated in the second quarter. The bank has already announced a reduction of 3,000 full-time jobs, Sloan said, and Wells will continue to "manage our capacity."
Wells Fargo is the largest originator of residential mortgages in the U.S. Due to its size, the company is sometimes considered a bellwether of the U.S. housing market.
Sloan said he believes that while mortgage origination has slowed, the U.S. housing market appears to be good shape.
"I don't think we've seen any sort of deterioration in the housing market," Sloan said, according to a transcript provided by FactSet, citing a continued increase in home prices across the country and no spike in delinquencies.
Interest rates rose considerably over the summer after Federal Reserve Chairman Ben Bernanke said the central bank plans to slowly end its massive bond-buying program, which has kept interest rates artificially low to help boost the economy. The yield on the 10-year Treasury note, the benchmark used to price mortgages, is currently 2.88 percent. It went as low as 1.63 percent in early May.
With the rise in interest rates has come a decline in mortgage originations. Applications for mortgages are down more than 50 percent from early May, according to the Mortgage Bankers Association.