Wells Fargo, once the No. 1 player in the mortgage industry, is withdrawing from the housing market
Wells Fargo is retreating from the multi-trillion dollar market for U.S. mortgages amid 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 bank and wealth management clients as well as borrowers in minority communities. number, CNBC knew.
The dual factors of the lending market have collapsed since the Federal Reserve started interest rate increase last year and increased regulatory oversight — both industry-wide and specific to Wells Fargo after 2016 fake account scandal – led to decision, said consumer lending director Kleber Santos.
“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” Santos said in a phone interview. “As part of that review, we determined that our home loan business was too large, both in terms of its overall size and scope.”
This is the latest and perhaps most important strategic shift that CEO Charlie Scharf has done since joining Wells Fargo in late 2019. Mortgage is still largest catalog debt held by Americans, accounting for 71% of the $16.5 trillion in total household balances. Under Scharf’s predecessors, Wells Fargo boasts a large share of home loans — it was the country’s top lender as of 2019, according to industry newsletters Inside Mortgage Finance.
More like an opponent
Now, as a result of this and other changes Scharf is making, including driving more revenue from investment banking and credit cards, Wells Fargo will more closely resemble its superbank rivals. american bank and JPMorgan Chase. Both companies ceded their share of the mortgage market after the 2008 financial crisis.
Following the one-time giant mortgage players in curtailing their activities has an impact on the US mortgage market.
When banks stopped lending to buy homes in the wake of the housing bubble disaster of the early 2000s, non-bank players included rocket mortgage quickly fill the void. But these newer players are not as tightly regulated as banks, and industry critics say that could lead consumers to fall into the trap. Today, Wells Fargo is the third largest mortgage lender after Rocket and United Wholesale Mortgage.
Third-party loans, services
As part of the cuts, Wells Fargo is also closing its agency business that buys loans made by third-party lenders and “dramatically” shrinking its portfolio of mortgage services through sales. property, Santos said.
The mail channel is a key business channel for San Francisco-based Wells Fargo, one that got bigger as its overall lending business shrank last year. October, bank speak 42% of the $21.5 billion in loans it originated in the third quarter were mail-in loans.
Santos said the sale of mortgage service rights to other players in the industry will take at least several quarters to complete, depending on market conditions. Wells Fargo is the largest U.S. mortgage servicer, involved in collecting payments from borrowers, with nearly $1 trillion in loans, or 7.3% of the market, calculated. through the third quarter, according to data from Inside Mortgage Finance.
lay off more
Overall, the change will lead to a new round of layoffs for the bank’s mortgage operations, the executives acknowledged, but they declined to quantify exactly how much. Thousands of mortgage officers have terminate or voluntarily leave the company last year when business was down.
The news should not come as a complete surprise to investors or employees. Wells Fargo employees have speculated for months about upcoming changes after Scharf announced his intentions several times over the past year. Bloomberg reported in August that the bank was considering cutting or halting lending respectively.
“Running the mortgage business in banks today is very different from 15 years ago,” Scharf told analysts in June. “We’re not going to be as big as we used to be” in the industry, he added.
Final changes?
Wells Fargo said it is investing $100 million in minority homeownership and placing additional mortgage consultants at branches located in minority communities.
“Our priority is to reduce risk to the place, focus on serving our own customers, and play the role society expects us to play as it relates to the home ownership gap between races,” Santos said.
The mortgage change marks what is likely to be the last major business change Scharf will make after splitting the bank’s operations into five divisions, bringing in 12 new executive committee members and creating into a diverse segment.
In a phone interview, Scharf said he doesn’t anticipate making other major changes, with the caveat that the bank will need to adapt to changing conditions.
“Given the quality of the big five across the franchise, we think we can afford to compete with the best businesses out there and win, whether it’s the bank,” he said. banks, non-banks or fintechs”.
