Beset by scandal and a market shift, one of the country’s leading mortgage players is planning on reducing its activities in the space.
Wells Fargo is planning on pulling back its mortgage business, Bloomberg reported. The retreat will likely begin by reducing the bank’s ties to outside mortgage firms, which generated about a third of the company’s $205 billion in new home loans last year.
“Like others in the industry, we’re evaluating the size of our mortgage business to adapt to a dramatically smaller originations market,” the company said in a statement.
Areas being eyed for potential reductions include correspondent mortgage lending, which is when Wells Fargo provides funding for loans arranged by third parties, the third-party servicing business responsible for billing and collections, and servicing of FHA loans.
Mortgage demand has slipped in recent months in the wake of higher rates, sparking layoffs at Wells Fargo and other mortgage players across the country.
While some of the struggles facing Wells Fargo’s mortgage business are the same for others in today’s environment, some are unique to the bank.
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Wells Fargo hit with $250M fine, new restrictions over mortgage lending practices
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In 2020, Wells Fargo rejected nearly half its Black applicants for a mortgage refinance
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Bloodbath: Mortgage industry keeps cutting staff
A federal oversight body last year hit the bank with a $250 million fine for unsafe practices regarding its mortgage lending loss mitigation program. Wells Fargo was accused of failing to comply with a 2018 order mandating that it identify and reimburse customers charged improper fees by its mortgage lending arm.
In addition to the fine, the bank received restrictions on future activities until it fixed ongoing problems. Wells Fargo was banned from acquiring some residential mortgage servicers and transferring borrowers out of the bank’s loan serving until remediation is provided.
The bank took another reputational hit this year, when a Bloomberg analysis revealed the bank turned down nearly half of the refinance applications sent by Black homeowners in 2020. The company approved nearly three-quarters of those sent by white applicants in the same period.
Wells Fargo was once the dominant company in the mortgage industry, responsible for one in every three home loans in the country. JPMorgan Chase’s mortgage business is expected to surpass Wells Fargo as the latter shrinks its activities.
— Holden Walter-Warner