Wells Fargo The US is retreating from the multi-trillion dollar market for mortgages amid regulatory pressure and the effects of high interest rates.
Instead of its previous goal of reaching as many Americans as possible, the company will now focus on home loans for existing bank and wealth management customers and borrowers in minority communities, CNBC has learned.
The twin factors in the lending market that has collapsed since the Federal Reserve began raising rates The consumer lending major said the decision was taken over the past year and because of questions about the long-term profitability of the business kleber santos, Regulators have increased oversight of mortgage lending over the past decade, and Wells Fargo has come under more scrutiny since 2016. fake accounts Scandal.
“We are fully aware of the history of Wells Fargo from 2016 and the work we need to do to restore public trust,” Santos said in a phone interview. “As part of that review, we determined that our home-lending business was too large both in terms of its overall size and its scope.”
This is the CEO’s latest and perhaps most important strategic shift Charlie Scharf Has done since joining Wells Fargo in late 2019. mortgages are still largest range Debt held by Americans accounts for 71% of the $16.5 trillion in total household balances. Under Scharf’s predecessors, Wells Fargo prided itself on its huge share in home loans — it was the nation’s top lender as recently as 2019, when it amounted to $201.8 billion, according to the industry newsletter. inside mortgage finance,
Now, as a result of this and other changes that Scharf is making, including an emphasis on investment banking and more revenue from credit cards, Wells Fargo will be closer to megabank rivals. Bank of America And JPMorgan Chase, Both companies surrendered pledged shares after the 2008 financial crisis.
The shrinking of those huge operations has had an impact on the US mortgage market.
As banks withdrew from home loans after the disaster of the early 2000s housing bubble, nonbank players including rocket hostage quickly filled the void. But these new players are not as closely regulated as banks, and industry critics say this could put consumers at a disadvantage. Today, Wells Fargo is the third largest mortgage lender behind Rocket and United Wholesale Mortgage.
Santos said that as part of its layoffs, Wells Fargo is also closing its correspondent business that buys loans made by third-party lenders and will “significantly expand” its mortgage-servicing portfolio through asset sales. “reducing from form.”
The correspondence channel is an important pipeline of business for San Francisco-based Wells Fargo, which grew as overall lending activity grew last year. bank in october Told Correspondent loans were 42% of the $21.5 billion in loans originated in the third quarter.
Santos said the sale of mortgage-servicing rights to other industry players will take at least several quarters to complete. Wells Fargo is the largest mortgage servicer in the US, with nearly $1 trillion in loans, or 7.3% of the market, collecting payments from borrowers as of the third quarter, according to data from Inside Mortgage Finance.
Overall, the change will result in a new round of layoffs for the bank’s mortgage operations, the executives acknowledged, but they declined to say exactly how many jobs would be lost. there were thousands of bonded labor terminated or voluntarily left the company As business declined last year.
This news shouldn’t come as a complete surprise to investors or employees. Wells Fargo employees had speculated about the coming changes for months, as Scharf telegraphed his intentions several times over the previous year. Bloomberg reported in August that the bank was considering cutting back or freezing the correspondent lending.
“It’s very different running a mortgage business inside a bank today than it was 15 years ago,” Scharf told analysts in June. “We’re not going to be as big as we’ve historically been in the industry,” he said.
Wells Fargo said it is investing $100 million toward its goal of minority homeownership and hiring more mortgage counselors at branches located in minority communities.
“Our priority is to free the space from danger, focus on serving our customers and fulfill the role that society expects of us as it relates to the racial homeowner gap,” Santos said.
The mortgage shift is potentially the last major business overhaul after the bank split operations into five divisions, brought on 12 new operating committee members and created a diversity segment.
In a phone interview, Scharf said he did not anticipate other major changes, with the caveat that the bank would need to adapt to evolving circumstances.
“Given the quality of the franchise’s five core businesses, we feel we are best positioned to compete and win with the best out there, be it bank, nonbank or fintech,” he added.