Wells Fargo is reportedly planning a “major retreat” from the mortgage business that could include scaling back or shutting down its correspondent lending channel, which has historically accounted for as much as half of the bank’s home loan business.
Correspondent lenders are typically smaller institutions who originate and fund their own loans, then resell them to other lenders or investors.
There are concerns inside Wells Fargo that “when it finances large amounts of loans from other firms, it’s on the hook for any reputational damage if problems later surface,” Bloomberg reported Sunday, citing anonymous sources.
Wells Fargo spokesperson Tom Goyda declined to comment on plans for correspondent lending. But Goyda confirmed to Inman via email that, “Like others in the industry, we’re evaluating the size of our mortgage business to adapt to a dramatically smaller originations market. We’re also continuing to look across the company to prioritize and best position us to serve our customers broadly.”
Wells Fargo CEO Charlie Scharf said much the same last month on a call with investment analysts, after the bank reported second-quarter mortgage originations of $34.1 billion, down 10 percent quarter-over-quarter, and 36 percent from a year ago.
“We’re not interested in being extraordinarily large in the mortgage business, just for the sake of being in the mortgage business,” Scharf said on the call. “We’re in the home lending business because we think home lending is an important product for us to talk to our customers about. And that’ll ultimately dictate the appropriate size of it.”
While the mortgage industry as a whole has seen the highly profitable business of refinancing existing loans dry up in the face of rising interest rates, that’s prompted many lenders to redouble their efforts to provide purchase loans to homebuyers.
The nation’s biggest mortgage lender overall, Rocket Mortgage, has made public its goal to surpass Wells Fargo as the leading retail provider of purchase mortgages, signing a series of deals to originate home loans for customers of smaller banks.
In the meantime, Wells Fargo has been scaling down its retail presence, operating 4,660 retail bank branches as of June 30, 45 less than it had on March 31 and 218 fewer than at the same time a year ago.
Wells Fargo mortgage originations by channel
Wells Fargo mortgage originations by channel in billions of dollars Source: Wells Fargo investor presentations
But even as Wells Fargo’s retail mortgage originations sputtered, the bank ramped up its purchases of loans originated by correspondent lenders during April, May and June, which grew by 5 percent from the first quarter to $14.5 billion.
Purchases of correspondent loans accounted for 43 percent of Wells Fargo’s total mortgage loan production in the second quarter, up from 31 percent a year ago. Before the pandemic, correspondent lenders accounted for more than 50 percent of Wells Fargo’s mortgage originations at times.
But according to Bloomberg’s sources, Wells Fargo is now rethinking correspondent lending as part of a larger strategy shift following leadership changes “and years of struggles to avoid costly regulatory probes and hits to the bank’s reputation” following a series of scandals.
Those scandals included a $100 million fine in 2016 for opening unauthorized accounts for customers, and a $250 million fine levied last year over the bank’s handling of loan modifications to distressed homeowners.
In March, Bloomberg reported that Wells Fargo was less likely to approve refinancing applications from Black homeowners than other lenders, sparking a potential class-action lawsuit.
Now Wells Fargo is weighing not only the potential financial risk of buying mortgages from correspondent lenders, but the reputational risk if problems with the loans it buys from smaller lenders surface in the future, Bloomberg’s Hannah Levitt reported.
Whatever the fate of Wells Fargo’s correspondent lending business, the size of its retail mortgage lending business may ultimately depend on the economy and interest rates, Levitt noted.
Wells Fargo has been shedding employees company wide, with headcount falling by 2,904 during the second quarter and 15,522 over the past 12 months, to 243,674.
“Insiders acknowledge those headcount reductions ultimately will go deeper as the firm recalibrates its size,” Bloomberg reported. For now, the bank is focusing on providing better service to existing customers seeking home loans.
Executives “are already under orders to improve handling of [mortgage] applications from existing consumer-banking and wealth-management clients, rather than refer them to the same system used by non-customers,” Bloomberg reported.
Last week loanDepot announced that it’s exiting the wholesale lending business, and will no longer accept loans originated by independent mortgage brokers.
The move is part of an overall goal of providing “our superior standard of customer service throughout the home ownership journey, from marketing to underwriting and closing, to providing ancillary and complementary products and services to servicing the loan for its duration,” the company said.
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