Bank of America (BAC) cut about 5 percent of staff in its appraisal unit last month as the firm rid itself of delinquent mortgages, said two people with knowledge of the move.
The job reductions at LandSafe, a business with more than 1,000 employees and acquired in the takeover of Countrywide Financial Corp., began Feb. 22, said the people, who requested anonymity because the dismissals were private. Appraisers, who estimate the market value of properties, and regional managers were cut, Tracy Sanderson, a LandSafe senior vice president, told staff in a Feb. 25 e-mail.
"While we have known we were overstaffed since the fall, we did everything we could to delay impacts as long as possible," Sanderson said in the memo obtained by Bloomberg News. "We were hopeful that our volume would return and potentially reduce the number impacted."
The bank has scaled back in mortgages after being saddled with more than $40 billion in costs tied to defective home loans since the 2008 Countrywide takeover. Bank of America, once the biggest U.S. home lender, fell to No. 5 in the fourth quarter after it stopped selling mortgages through third parties and was eclipsed by competitors including Quicken Loans Inc., according to newsletter Inside Mortgage Finance.
About 70 percent of work done by LandSafe appraisers was related to transactions for soured loans, including the auction of bank-owned properties and short sales in which a borrower's home is sold for less than the amount owed, said one of the people. The bank's expected increase in originations this year isn't enough to offset the drop in work resulting from having fewer delinquent loans to service, the person said.
Bank of America had about 773,000 mortgage customers who were at least two months behind on payments at the end of 2012. That figure will drop to 400,000 distressed borrowers by the end of this year, fueled by the sale of mortgage-servicing rights on $306 billion in loans, announced in January, the firm said.
Terry Francisco, a spokesman for Charlotte, North Carolina- based Bank of America, confirmed the bank was cutting LandSafe personnel and finding jobs elsewhere in the firm for some of them. The current staff will be able to handle the expected growth in mortgage originations in 2013, he said.
"If they do more loans this year than last, I'd be surprised," said Paul Muolo, managing editor of Bethesda, Maryland-based Inside Mortgage Finance, who predicts that Bank of America's refinancing revenue will drop. "They're not competing aggressively on rates, they take a long time to close loans, and they're living off refis that will decline when rates rise."
Eliminating workers involved in serving delinquent borrowers is part of Chief Executive Officer Brian T. Moynihan's plan to pare expenses. Bank of America dismissed 3,000 such employees and 6,000 contractors in the fourth quarter, he said. About $3 billion of quarterly costs tied to legacy asset servicing eventually will fall to $500 million, Moynihan has said.
"There's nothing more important in our company than to get this done as quickly as possible," Moynihan, 53, told analysts during a Jan. 17 conference call.
Other competitors have said they would scale back in home lending. JPMorgan Chase & Co., the largest U.S. bank by assets, will cut as many as 15,000 mortgage-related jobs through 2014 as fewer employees are needed to service soured loans, the New York-based company said last month.
Rising interest rates may tamp refinancings, which comprised 71 percent of originations last year, and new loans for home purchases probably won't make up for the shortfall, according to a Mortgage Bankers Association forecast. Total lending will fall to $1.4 trillion in 2013, a 20 percent drop from the year earlier, and decline an additional 24 percent to $1.06 trillion in 2014, the group said.