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By Elizabeth Dilts Marshall
NEW YORK, July 8 (Reuters) - U.S. analysts and economists will be watching to see how banks' mortgage businesses are faring during their second-quarter earnings this month, as U.S. Federal Reserve rate hikes continue to crimp mortgage originations and refinancings.
After hiring tens of thousands of staff between 2018 and 2020 to handle surging mortgage originations and refinancings driven by low interest rates, the mortgage sector is downsizing. U.S. banks including JPMorgan Chase & Co and Wells Fargo & Co have started cutting staff, with more industry layoffs expected in coming months, said analysts and economists.
"Over the next month or two we'll see the bulk of layoffs," said Doug Duncan, chief economist at Fannie Mae, which, along with Freddie Mac, backs many U.S. mortgages. "There is usually about a six-month lag between a turn in the market and layoffs."
Home loan interest rates surged to a 14-year high in June after the Fed hiked rates by 0.75% percentage point. The average rate on a 30-year fixed-rate mortgage, the most common U.S. home loan, was 5.3% as of July 7, up from 2.9% a year ago, according to Freddie Mac.
Fannie Mae economists predict that total home sales will fall by 13.5% this year and that mortgage originations will decline by nearly 42% to $2.6 trillion.
Big U.S. banks will start to report earnings for April through June, historically home-buying season in the United States, on July 14.
BANK DOWNSIZING
The industry pain began late last year among nonbank lenders focused on refinancings. Better.com, for example, laid off 900 employees in December, with several nonbank rivals following suit this year.
Gerard Cassidy, head of U.S. bank equity strategy at RBC Capital Markets, said the bigger banks were starting to downsize too. "We expect it to continue throughout the year as the refinancing business remains under considerable pressure."
Wells Fargo, the biggest bank in the U.S. mortgage business, cut staff in April and June, said one person with knowledge of the matter. JPMorgan, among the 10 biggest U.S. bank mortgage lenders, also cut staff in June, said a different person with knowledge of its plans. The sources declined to provide figures.
The mortgage business accounted for 6% and 2% of total revenue at Wells Fargo and JPMorgan, respectively, last year, according to data compiled by RBC's Cassidy.
In the first quarter, Wells Fargo reported a 33% year-on-year decline in mortgage revenue, while JPMorgan said home lending net revenue was down 20%. That decline is expected to continue in the second quarter.