Call it a wage taper.
This past week, Wall Street banks began peppering the news with layoff announcements pegged to the departments most affected by rising interest rates.
Mortgage-lending and fixed income — bond dealers — are feeling the brunt of the Fed’s expected announcement this week of a pullback in the $85-billion-a-month injection into bonds and mortgage-backed securities.
Interest rates on the 10-year Treasury — off of which mortgages are priced — have gone from 1.5 percent in May to almost 3 percent.
Take that increase of 1.4-plus percentage points out of borrowers’ pockets, and it’s no wonder refinancings and mortgage applications plummeted 13.5 percent month over month just last week.
On a $200,000 mortgage, that’s an additional $233 a month gone; on a $500,000 mortgage, that’s 583 bucks out-of-pocket every single month for the next 30 years.
That’s a lot of money, and it completely destroys the affordability of a home for many families.
When markets get destroyed like the mortgage market just did (once again) people lose their jobs. The big banks have begun laying off their mortgage staffers by the tens of thousands.
— At a conference this week, JPMorgan’s chief financial officer, Marianne Lake, said that profit margins on mortgage lending would be negative in the third and fourth quarters as the spike in rates “happened sooner than we had expected.” As a result, JPMorgan plans to cut 15,000 people over the next one to two years.
— Bank of America said it will now be closing 16 more offices by the end of October, laying off 2,100 people, on top of the 30,000 it was already planning to lay off.
— And the nation’s largest mortgage maker, Wells Fargo, plans an additional 2,000 cuts — that’s on top of the hundreds that will be losing their jobs after Wells announced its exit in July from the joint-venture mortgage brokerage business due to new regulations that are part of Dodd-Frank.
Tens of thousands of hardworking people making decent wages and paying taxes into the system are now facing unemployment.
Enough talk. The best thing the Fed could do for the unemployed would be to taper all the taper talk.