Cal Fed to Lay Off 190 as Its Home Loan Activities Slow

California Federal Savings said Friday that it will lay off 190 employees statewide in its residential lending operations, the latest evidence of how rising interest rates in the economy are pressuring lenders making adjustable-rate mortgages.

The layoffs, representing 23% of the Los Angeles-based company’s real estate lending work force, come as several other banks and savings and loans also are trimming staffs. Coast Savings of Los Angeles and San Francisco Federal Savings have cut mortgage origination employees, and several other firms are said to be considering similar reductions through pink slips or attrition.

Other firms, such as Glendale Federal Savings, have recently reduced employees in loan servicing operations as part of consolidation moves.

Lenders are squeezed in part because the 11th District cost-of-funds index--the major index to which adjustable-rate mortgages are tied in California--has not risen fast enough to keep up with increases in interest rates that institutions must pay to obtain funds to lend. That is causing some lenders, such as Cal Fed and Coast, to reduce the number of new loans they plan to make.

Investors who buy loans in the form of mortgage-backed securities also are balking at buying those tied to the cost-of-funds index, drying up a key source of fee income and money the institutions use to make new loans.

Also, some analysts say, higher loan rates are slowing demand for mortgages because thousands of prospective buyers can no longer qualify to buy homes. Accordingly, some analysts expect profits for state S&Ls; to fall in the first quarter.

Cal Fed spokesman John C. Kaufman said the firm’s layoff decision, which came Wednesday, was spurred in part by a company strategy to price its loans at about half a percentage point above rates charged by competitors. That has preserved profitability but reduced demand from borrowers who are going to other lenders, he said.

“The mentality of other institutions is that volume equals profits,” Kaufman said. “We’re thinking the exact opposite. We want to maintain the integrity of our loan portfolio.”

Kaufman said the layoffs would affect 10 loan centers around the state, including seven in Southern California, but the firm is not pulling out of any markets. The seven Southern California centers are those in Warner Center, Riverside, Rancho Bernardo, Fountain Valley, Santa Ana and two in Los Angeles. Those receiving pink slips include managers, loan officers and back office personnel, he said.