Wells Fargo is reducing its home lending footprint, a move that experts say will have major ramifications in the mortgage industry.
Formerly the nation’s largest mortgage lender, the bank announced Tuesday that it is exiting the correspondent lending channel and shrinking its mortgage servicing portfolio.
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Kleber Santos, CEO of Consumer Lending, said in a statement.
The company’s correspondent arm accounted for 42% of its loan originations in Q3 2022.
Demand is down across the country due to affordability issues and high mortgage rates.
Lenders are seeing originations shrink, resulting in closures and layoffs. Wells Fargo has suffered the same fate, conducting layoffs through 2022.
This move will force another round of layoffs, but it is unclear how many jobs will be impacted.
Wells Fargo’s lending arm has been further impacted by a problematic lending history. It paid $250 million in fines this year for not assisting borrowers in financial distress and was found to have discriminated against Black borrowers.
In 2016, the bank came under fire for setting up fake accounts using its customers’ names. They agreed to pay $3 billion to resolve criminal and civil probes in 2020.
A Federal Reserve order prohibits Wells Fargo from expanding its lending business until these problems are resolved.
Santos noted that the decision to downsize its lending business is a direct result of the review conducted in the aftermath of the 2016 scandal.
“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” he told CNBC. “As part of that review, we determined that our home-lending business was too large, both in terms of overall size and its scope.”
Leaders at the company have a new plan that includes “optimizing” its retail team to focus on bank customers and underserved communities. To this end, Wells Fargo will invest an additional $100 million to advance racial equity in homeownership and expand its Special Purpose Credit Program to include purchase loans.
The SPCP initially provided refinancing to Black homeowners whose mortgages were serviced by the bank.
Ted Rossman, senior industry analyst at Bankrate.com, told CNN that the move is similar to other banks’ responses to the 2008 financial crisis.
“They’ve gotten more into trading and credit cards and are focusing less on the mortgage business, which now counts nonbank fintechs such as Rocket Mortgage and loanDepot among its largest players,” Rossman said.
“The regulatory environment, the economics, and the risk/reward calculus of being in the mortgage market have changed significantly in recent years.”
QuickenLoans, now Rocket Mortgage, unseated Wells Fargo as the country’s largest lender in 2017.
Follow Us On Twitter:
Read More Articles:
Kelly Fercho Named Head Of Wells Fargo’s DSRI
Wells Fargo Downsizing Mortgage Business As Pandemic High Wears Off