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Th e M Rep o RT | 51 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SERVICING the latest Wells Fargo to cut 1,000 servicing Jobs With an improving housing market and fewer delinquencies, the large bank said it no longer needs as many servicers as it has over the past few years. W ells Fargo will cut 1,000 jobs after closing its home lending servic- ing office in Milwaukee, due to fewer homeowners falling behind on payments and seeking help in keeping their homes, according to the Associated Press. The news wire reports em- ployees at the office worked with U.S. residents who were behind on their home loan payments. In an emailed statement, Wells Fargo & Co. said as the economy has improved over the last two years, fewer customers have become delinquent on their payments, and fewer customers have needed assistance to stay in their homes. The company said it will continue to offer assistance to borrowers facing financial hardship. Wells Fargo will close the office in late July. It says it will inform employees of other job opportuni- ties within the company. Wells Fargo said the Milwaukee office is one of its smaller loan servicing sites. About 48,000 people work for the company's home lending business. The San Francisco-based company has about 265,000 employees in total. U.S. employers have added more than 5 million jobs over the last two years, and the U.S. economy grew in seven of the last eight quarters covering 2013 and 2014, although there are some signs that growth has weakened in 2015. Wells Fargo shares have risen 12 percent over the last 12 months. Wells Fargo also announced in March that corporate banking chief Mike Johnson will retire at the end of the second quarter, ac- cording to the Wall Street Journal. The Journal reports, Johnson, a 32-year veteran of Wells Fargo, oversaw the bank's business involving mostly large, multina- tional corporations. He reported to wholesale banking chief Timothy Sloan, a member of the company's operating committee. Wells Fargo's corporate bank took in $3.6 billion in revenue in 2013, according to a May 2014 in- vestor presentation from the bank. "Not only has [Mr. Johnson] helped build one of the industry's best corporate banking businesses, he's also been a key figure over the years in helping to define and ingrain our Wells Fargo culture of always putting the customer first," said Wells Fargo Chief Executive John Stumpf in a memo to employees. The bank hasn't decided on a successor to Johnson. them to qualify for lower-interest modification programs. "Modification-induced strategic defaults appear to be quite widespread and more severe among more risky loans," the authors state. According to the authors, the implications of modification- induced strategic defaults are different between current and delinquent borrowers. For loans current before a modification, defaults involve borrowers intentionally stopping payments in order to become eligible for mortgage modification. For already delinquent loans, some borrowers continue missing the payments, rather than become current, in order to remain eligible for a program. A third of the loans Li and Zhao looked at had payments past due, "with the overwhelming majority of them more than 60 days past due in the month right before the modification announcement," they write. "Our estimates imply that the modification announcement indeed induces strategic defaults among borrowers who were already in payment delinquency before the modification announcement, and these strategic defaulters make up roughly half of all strategic defaulters." What concerns the authors is that while the housing market has largely recovered, the practice of purposefully defaulting on a loan in order to qualify for a modified, lower-rate program could easily be duplicated for borrowers on auto loans, credit cards, and student loans. "A thorough analysis of modification-induced defaults bears tremendous implications for banking practice and public policy decisions in general," the authors state. Exactly what those implications are, the authors do not say, but when the implications for borrowers include wrecked credit and increased difficulty qualifying for future mortgages, it becomes clear that lenders having to contend with a crush of applicants with poor credit and a history of defaulting on loans will have to modify their lending.

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