Poor results could prompt additional job cuts and worsen the already downcast mood on Wall Street, bankers and recruiters said.
“I haven’t seen morale this bad since the Titanic,” said Richard Stein, a senior recruiter at Caldwell Partners, who specializes in financial services.
The tempered expectations are a troubling sign for an industry already struggling to overcome lackluster loan demand, a weak economy and the hangover from the 2008 financial crisis, as regulators and government investigators work through a backlog of cases focused on banks’ activities during the housing downturn.
“For a while we thought a light was at the end of the tunnel,” said Gerard Cassidy, a banking analyst with RBC Capital Markets. “It seems to be a Mack truck.”
Nowhere are banks hurting more than in mortgages. Banks long have braced for a slowdown, but the spike in interest rates this summer brought a yearlong boom to an abrupt end.
“It’s been brutal,” said Michael Menatian, a mortgage banker in West Hartford, Conn. “We were flat-out busy until May. Once rates went up, things went completely dead.” He said he closed around $4 million in loans every month through June, and about $1.5 million a month since then.
The Mortgage Bankers Association expects refinance volume to fall from $1.2 trillion last year to less than $400 billion next year, which would be the lowest level since 2000. While home-purchase lending is expected to rise, it won’t go up by nearly enough to account for the shortfall, experts said.
J.P. Morgan, Bank of America, Wells Fargo and Citigroup already have cut more than 10,000 mortgage jobs this year, with plans for thousands more to come. J.P. Morgan is accelerating plans to cut as many as 15,000 jobs in its mortgage division by the end of 2014.
All told, the number of employees in the industry will likely shrink by 25% to 30% over the next year, estimates Christine Clifford, president of Access Mortgage Research & Consulting, Inc., a Columbia, Md., mortgage research and consulting firm.
Bankers now warn of a long-term turn away from refinancing and toward home-purchase lending as a three-decade period of declining rates seems to be nearing an end.
“Over the last five years, all you had to do was answer the phone,” said David Stevens, chief executive of the Mortgage Bankers Association, at an industry conference last month. “That’s going to be over, and it’s going to be over for quite some time.”