Wells Fargo is cutting back on its once-mammoth mortgage-lending business as it weathers a downtown in the US housing market and sustained scrutiny from federal regulators.
The San Francisco-based institution said Tuesday it would pare back its mortgage services to focus on existing “bank customers, as well as individuals and families in minority communities.
Wells Fargo is also nixing its correspondent business, in which the bank bought mortgage loans made by other lenders, and cutting 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,” Wells Fargo consumer lending CEO Kleber Santos said in a statement.
The move marked a major strategy shift for Wells Fargo, which once ranked as the country’s largest mortgage lender. The bank had lending volume of $201.8 billion in 2019, according to trade publication Inside Mortgage Finance.
The volume of new mortgage and refinancing applications cratered to a 25-year low over the last year as long-term rates surged in response to the Federal Reserve’s slate of supercharged rate hikes. The average 30-year fixed-rate mortgage was 6.48% as of last week, nearly twice as high as it was during the same week one year earlier.
It wasn’t immediately clear if Wells Fargo’s strategy shift would result in layoffs. The Post has reached out to the bank for further comment.
In December, Bloomberg reported that Wells Fargo had laid off “hundreds” of employees in its mortgage lending division due to the ongoing housing market correction.
As part of its reshuffling, Wells Fargo announced that it would invest $100 million “to advance racial equity in home ownership, including strategic partnerships with non-profit organizations and community-focused engagements.”
Wells Fargo recently agreed to pay a record $3.7 billion to settle charges from the Consumer Financial Protection Bureau, which accused the bank of engaging in a “rinse-repeat cycle of violating the law” that “harmed millions of American families.
The institution was accused of various violations across its mortgage, auto loans and banking divisions – including a charge that it improperly rejected thousands of customer applications to modify mortgages. In some cases, the rejections caused the customers to lose their homes to foreclosure.
Wells Fargo remains subject to a $1.95 trillion asset cap imposed by the Federal Reserve in 2018. Fed Chair Jerome Powell has indicated the cap will stay in place until Wells Fargo’s issues are sufficiently addressed.
In an interview with CNBC, Wells Fargo’s Santos said the strategy shift was driven in part by regulatory scrutiny of its mortgage business.
“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” Santos said. “As part of that review, we determined that our home-lending business was too large, both in terms of overall size and its scope.”