Wells Fargo, once the No. 1 mortgage provider, is going out of business
Wells Fargo withdraws from the multi-trillion dollar US mortgage market in the face of regulatory pressure and the impact of higher interest rates.
Instead of its previous goal of reaching as many Americans as possible, the company will now offer home loans to existing banking and wealth management customers and borrowers in minority communities, CNBC has learned.
Two factors in a credit market that has collapsed since the Federal Reserve began raising interest rates last year and questions about the long-term viability of the business led to the decision, the head of consumer credit said Glue Santos. Regulators have tightened their scrutiny of mortgage lending over the past decade, and Wells Fargo came under further scrutiny following its 2016 fake account scandal.
“We are very aware of the history of Wells Fargo since 2016 and the work we must do to restore public confidence,” Santos said in a phone interview. “As part of this review, we determined that our mortgage lending business is too large, both in terms of overall size and scope.”
It’s the latest and perhaps most significant strategic shift CEO Charlie Scharf has made since joining Wells Fargo in late 2019. Mortgages are by far the most important largest category of American-held debt, which accounts for 71% of the total $16.5 trillion household balance. Among Scharf’s predecessors, Wells Fargo prided itself on its large share of home loans – it was the country’s largest lender as recently as 2019, at $201.8 billion, according to industry news Inside mortgage financing.
More like rivals
As a result of these and other changes Scharf is making, including seeking more investment banking and credit card revenue, Wells Fargo will become more like its megabank rivals Bank of America and JPMorgan Chase. Both companies relinquished mortgage interests after the 2008 financial crisis.
The downsizing of these once-giant operations is having an impact on the US mortgage market.
When banks backed out on home loans after the housing bubble catastrophe of the early 2000s, including non-banks rocket mortgage quickly filled the gap. But these newer players aren’t as tightly regulated as banks, and industry critics say consumers could face pitfalls. Today, Wells Fargo is the third largest mortgage lender after Rocket and United Wholesale Mortgage.
Third-party loans, servicing
As part of its cut, Wells Fargo is also closing its correspondent business, which buys loans from third-party lenders, and is “significantly” downsizing its mortgage services portfolio through asset sales, Santos said.
The correspondent channel is a significant business pipeline for San Francisco-based Wells Fargo, one that grew as overall lending activity shrank over the past year. In October the bank said Of the $21.5 billion in loans originated in the third quarter, 42% were correspondent loans.
Selling mortgage service rights to other industry players will take at least several quarters depending on market conditions, Santos said. Wells Fargo is the largest U.S. mortgage lender focused on collecting payments from borrowers, with nearly $1 trillion in loans, or 7.3% of the market, in the third quarter, according to Inside Mortgage Finance data.
More layoffs
Overall, the postponement will prompt a new round of layoffs at the bank’s mortgage business, executives acknowledged, but declined to quantify exactly how many jobs will be lost. Thousands of mortgage workers were resigned or left the company voluntarily last year due to the downturn in business.
The news shouldn’t come as a complete surprise to investors or employees. Wells Fargo employees have speculated about changes for months after Scharf cabled his intentions several times over the past year. Bloomberg reported in August that the bank was considering reducing or ceasing lending.
“It’s very different running a mortgage business within a bank today than it was 15 years ago,” Scharf told analysts in June. “We’re not going to be as big in the industry as we were historically,” he added.
Last changes?
Wells Fargo said it is investing $100 million toward its goal of creating minority homeownership and placing more mortgage advisors in branches in minority communities.
“Our priority is to de-risk the place, focus on serving our own customers and playing the role that society expects of us when it comes to the racial homeownership gap,” Santos said.
The shift in mortgage lending may be the latest major business change Scharf will make after Scharf split the bank’s operations into five divisions, hired 12 new operations committee members and created a diversity segment.
In a telephone interview, Scharf said he did not expect any further major changes, with the caveat that the bank would have to adapt to changing conditions.
“Given the quality of the big five companies across the franchise, we believe we have the ability to compete and win with the very best out there, whether they’re banked, non-banked or fintech,” he said.
https://www.cnbc.com/2023/01/10/wells-fargo-once-the-no-1-player-in-mortgages-is-stepping-back-from-the-housing-market.html Wells Fargo, once the No. 1 mortgage provider, is going out of business