Looming layoffs at Bank of America signal shift in mortgage servicing

Impact already being felt throughout industry

Bank of America (BAC) is preparing to lay off nearly 200 workers in its North Texas mortgage servicing operations center as the impact of the bank’s $16.65 billion toxic mortgage settlement is beginning to be seen throughout the entire mortgage industry.

In August, Bank of America finally agreed to settle with the U.S. Department of Justice, other federal agencies and six states to resolve claims over toxic residential mortgage-backed securities, collateralized debt obligations and an origination release on residential mortgage loans sold to Fannie Mae and Freddie Mac.

In the settlement, Bank of America admitted to failing to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims connected to more than $2 trillion in residential mortgage sales from 2004 through the first half of 2008 by the bank and certain companies it acquired, the Securities and Exchange Commission said when the settlement was announced.

The loans primarily date back Countrywide and Merrill Lynch prior to Bank of America’s acquisition of them, and the impact of the settlement will be far reaching.

As part of the settlement, Bank of America is to pay a total of $9.65 billion in cash and provide approximately $7 billion worth of consumer relief.

“The $7 billion in consumer relief will focus on areas that were hardest hit during the housing crisis,” the U.S. Department of Housing and Urban Development said at the time.

“Consumer relief will take various forms including loan modification for distressed borrowers, including FHA-insured borrowers, and new loans to credit worthy borrowers struggling to get a loan in hardest hit areas, borrowers who lost homes to foreclosure or short sales, and moderate income first-time homebuyers.”

As it turns out, more than just the aggrieved homeowners will feel the impact of the settlement. Nearly 200 people in Bank of America’s mortgage servicing department are about to lose their jobs because of it.

News of the layoffs was discovered in a State of Texas Worker Adjustment and Retraining Notification ACT Notice. The WARN Notice shows that Bank of America will layoff 187 employees from its Plano, Texas offices on Nov. 7.

When contacted about the prospective layoffs, Bank of America spokesperson Jumana Bauwens said that the layoffs are due to the bank’s decreasing amount of delinquent mortgages.

“We’ve made significant progress in assisting mortgage customers, having helped nearly two million homeowners avoid foreclosure,” Bauwens said. “We are proud to be a leader in delivering proprietary and government solutions as part of our continuing effort to support our mortgage customers in need of assistance. Bank of America is staffed to administer consumer relief programs including those under the recently announced DOJ settlement, which will be made available in the fourth quarter. We will not sacrifice service to our customers in need of assistance.

“The number of delinquent mortgage loans we service has decreased to one-fifth of their peak levels. Due to the lower demand for these specialized services, we are reducing the size of the operations. This division was created in 2011 and staffing grew dramatically to support the short-term needs of mortgage customers at risk of foreclosure. Now, we are in the process of returning to normal staffing levels.”

The news of Bank of America scaling back its mortgage operations shouldn’t come as a surprise. The bank has been saying that it was going to pull back on mortgages since shortly after the DOJ settlement was announced.

In September, the co-heads of the bank’s consumer banking operations said that the bank is decreasing its “aggressiveness” in mortgages going forward.

“While a lot of our competitors are still using a few growth engines such as non-agency customers, we have refocused everything into just our customer base,” Thong Nguyen, Bank of America's head of retail strategy, sales and operations, said at the RBC Capital Markets 2014 Financial Institutions Conference in September.

“So things like direct mail to non-customers or mortgage through correspondence and brokers and what not, we have shut that.”

And given the amount of customer relief the bank is about to pay out and considering the number of delinquent borrowers who have already received relief, scaling back on servicing seems like a logical next step.

But that doesn’t mean that the impact stops at Bank of America and its employees.

Special servicers like Wingspan Portfolio Advisors are feeling the impact too.

In just the last week, reports of Wingspan laying off employees at its Melbourne, Florida and Monroe, Louisiana locations have already surfaced. And Thursday, HousingWire reported that Wingspan’s founder, CEO and president, Steve Horne, allegedly had been removed from leading the company he founded in 2008.

The company denied the ouster of Horne as President when contacted by HousingWire on October 2, saying, via Senior Vice President of Marketing, Communications and Industry Relations Guy Davis, “The rumor is completely inaccurate and Steve Horne continues to lead the Wingspan organization.”

In both Monroe and Melbourne, employees were told they were being “furloughed” by the company and could potentially be rehired.

Both facilities were acquired from JPMorgan Chase (JPM) but HousingWire has confirmed that loss of business from Bank of America caused Wingspan to “furlough” at least 400 workers from its Frisco, Texas, location earlier this year.

When Wingspan moved into the 125,000-square-foot building in the North Dallas suburb in 2012, it signed an agreement with the Frisco Economic Development Corporation, which stipulated that the company could receive $720,500 from the Frisco EDC if it met certain requirements within four years, including bringing 1,100 jobs to the area.

According to the Frisco EDC, Wingspan received two separate payments of $262,000 for meeting the stipulations in 2012 and 2013. To receive the first payment of $262,000 in 2012, Wingspan was required to have at least 400 full-time employees and lease 125,000 square feet of office space in Frisco. According to the Frisco EDC, it met those stipulations and received payment in early 2013.

To receive the next payment, Wingspan was required to have at least 800 full-time employees by December 31, 2013, while also maintaining the leased office space of 125,000 square feet. According to the FEDC, Wingspan met those stipulations by having 864 employees at the Frisco facility as of Dec. 31, 2013, and received payment in early 2014.

Darcy Schroer, the Frisco EDC Director of Marketing, told HousingWire Friday that the Frisco EDC terminated its incentive agreement with Wingspan on Aug. 22 after receiving word from Wingspan in July that it had lost its Bank of America contracts and would be furloughing 400 employees and assigning the remaining employees to other Wingspan locations.

“They (Wingspan) told us that Bank of America had essentially gotten out of the mortgage business,” Schroer told HousingWire. “Based on the conversation on July 24, it was clear they would not meet the incentives going forward. They let us know they would no longer be in Frisco.”

Today, the three-story building that once housed Wingspan’s Bank of America operations sits empty, a virtual ghost town still filled with office furniture and appearing without a single person to fill any of the desks.

“Any loss of jobs in Frisco is always of concern to the Frisco EDC as creating full time jobs is one of our top priorities,” Frisco EDC President Jim Gandy told HousingWire.

“The Frisco EDC has an active business retention and expansion program to assist our existing companies in Frisco. Unfortunately, due to circumstances beyond our control, occasionally a Frisco business moves jobs and/or operations out of the city.”

When HousingWire visited the abandoned Wingspan office in Frisco on Friday, landscapers were pulling up the flowers that decorated the building’s entrance.

Once the flowers were gone, there was nary a living thing on the property.

It was a stark reminder of the far-reaching impact that these billion dollar settlements can have throughout the entire mortgage industry.

It isn’t just the big banks that feel the pain. It affects everyone.

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