Wells Fargo Announces More Layoffs In Its Mortgage Department

The residential housing market drumbeat has begun again. Rising housing prices are depicted as "proof" that residential real estate market, with its odious bidding wars, has recovered its animal spirits. Foreclosures, still very much a fact of life in many parts of the United States, are conveniently ignored. Instead, the focus is on rising prices, as if this event were in and of itself the greatest possible good our Federal Reserve-subsidized economy can generate.

A look behind the "good news" curtain offers a different perspective. Late last week, Wells Fargo announced it was laying off 1,800 employees in its mortgage division, according to an Associated Press story appearing in the Mercury News. The reason? Fewer people are refinancing their homes. This is a curious situation, given the attractive, low interest rates currently available.

Something doesn't quite connect here.

Housing Bubble Worries Start to Bubble Up

Housing has become a significant part of the action in the recent, Fed-stimulated economic recovery. The happy talk around the upswing features cheerful notes about increased home values and multiple bids. However, some wise heads are considering whether this so-called recovery is in fact becoming a housing bubble. According to a story in bloomberg.com, "investors" are fueling the housing market, rather than single-family home owners. These players include deep-pocketed firms such as Blackstone, which purchase foreclosed homes on the cheap and transform them into rentals. The dirty secret in this arrangement is that rents in these homes turn out to be higher than the mortgage payments the homes' former owners could not afford to make.

The Bloomberg article cited a Wells Fargo housing analyst's view of the market. Investors, the expert noted, "are buying properties as quickly as they can and when they leave, housing will take a hit. Investors accounted for 19 percent of sales in the U.S. in March and even more in some former bubble markets, according to the National Association of Realtors." Guess who will take the fall when the next bubble bursts?

Wells Fargo's Mortgage Market "Oops"

Wells Fargo announced it planned to "correct and resubmit" 55,000 documents that, if competently used, would get many homeowners The New York Times story expresses skepticim toward the Wells Fargo line.

The significance of the story is that Wells Fargo's stonewalling broke down. It had been the last major bank to try to dodge and weave through the housing crisis. The story seemed to have its own life, with Wells' heaping on the denials while other banks waved the white flag.

The photo shows a Wells Fargo strong box from a very different time.