CHARLOTTE, N.C. — In addition to scaling back its investment banking operations, Bank of America Corp. is exiting the wholesale mortgage business and eliminating about 700 jobs, bank officials said Thursday.
The nation's second-largest bank will stop offering home mortgages through brokers at the end of the year to focus on direct-to-consumer lending through its banking centers and loan officers. The move also eliminates the jobs in the bank's consumer real estate unit.
The bank shared details of the decision with The Associated Press before its public announcement scheduled for today.
The cuts are part of a 3,000-job reduction engineered by Chief Executive Ken Lewis after the bank reported a decline in third-quarter earnings.
"When Ken talks about atop-to-bottom review in five days' time, you can't make that happen. These cuts were in the works, and expect more," said Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte. "Don't underestimate the depth of Lewis' disappointment in earnings. This guy is pissed."
The bank started informing employees Thursday. Bank of America's consumer real estate division employs about 13,000and it works with about 7,000 independent brokers.
"While we are extremely proud of our strong track record in the wholesale business, we believe our long-term opportunity lies in maximizing our more competitive retail channels," said Floyd Robinson, Bank of America's president of consumer real estate and insurance services in a statement.
A manifestation of that retail strategy, especially during adownturn in the U.S. mortgage market, has been the development and successful execution of its national "no-fee" mortgage program.
The nation's financial institutions have been squeezed as a credit-crunch and defaults in subprime loans have caused investors to become hesitant about taking risks. Dozens of home lenders halted operations this year and are being slammed ashousing prices continue to slide. An increase in defaults have forced banks to tighten lending standards.
Bank of America's product, which was introduced in May, does away with the collection of borrower, lender and thirdparty fees that typically add a few thousand dollars to the price of buying a home. That product has produced more than $50 billion in application volume in the past six months, according to the bank.
Such a product, Robinson said, has enabled Bank of America to "gain critical market share."
In the third-quarter, Bank of America's overall first mortgagefunded production increased 27 percent when compared with the same period last year. Driving that overall increase was a 60 percent spike in funded mortgage originations through banking centers and a 26 percent increase in funded originations by mortgage loan officers, the company said.
"Ken says he likes the retail business, he likes getting to know customers, underwriting, and managing his risk," said Plath, the university professor. "He just doesn't like the securitization and servicing sides of the business."
He may not like it, but he is willing to form an alliance and help it.
In August, Bank of America invested $2 billion in Countrywide Financial Corp. - the biggest U.S. home lender - when the Calabasas, Calif.-based company was running short of cash.
Countrywide is among the dozens of mortgage lenders that have battled a spike in mortgage defaults and foreclosures, especially in subprime loans - those made to borrowers with weak credit.
Those specific problems haven't extended to Bank of America, which exited the subprime lending market in 2001 when Lewis took over as chief executive. The bank called it a business that had "become unattractive from a risk-reward standpoint."
Business, Pages 35, 36 on 10/26/2007