Wells Fargo is one of the largest mortgage lenders in the country — but perhaps not for much longer.
On Tuesday, the bank announced it will step back from the home lending business, a move that could lead to significant job cuts for one of Charlotte’s largest employers.
Wells Fargo plans to dial back on home loan servicing operations, the bank said, and completely halt correspondent lending. That business, through which Wells Fargo buys mortgages made by third-party lenders, made up a sizable chunk of its home lending operations.
Instead, the bank will focus on lending to existing customers and minority communities, according to a news release.
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Kleber Santos, Wells Fargo’s CEO of consumer lending, said in a statement.
The move marks a retreat from one of the industry’s mortgage giants as the industry buckles under higher interest rates and a slowing housing market. Just a few years ago, Wells Fargo was the largest mortgage lender in the United States.
The shift will likely lead to layoffs, said Kyle Sanders, an equity analyst at Edward Jones.
“This is just another example of the new leadership putting their thumbprint on the strategic direction of (Wells Fargo),” Sanders told The Charlotte Observer. “The mortgage market is facing significant challenges right now, and they’re not afraid to act.”
Wells Fargo is based in San Francisco but has its largest employment base in Charlotte, with about 27,000 workers here.
Mortgage profits plummet
Like many other banks, Sanders said, Wells Fargo saw its home lending business drop off in 2022.
The housing market boomed during the pandemic, as mortgage rates fell to historic lows and consumers snapped up cheap loans. But those rates started climbing last January, in anticipation of the Federal Reserve’s multiple interest rate hikes.
As the cost of the loans increased, fewer Americans sought out mortgages or refinancings, and loan originations plummeted. By the spring, lenders were already laying off workers — including dozens of job cuts in Charlotte.
In October, Wells Fargo reported a 52% year-over-year drop in quarterly earnings from home lending.
“It’s just a tougher business,” Sanders said. “They’re going to reduce headcount to protect profitability.”
Also weighing on recent profits is a $3.7 billion regulatory charge from the Consumer Financial Protection Bureau, levied late last year.
The CFPB said in December that it ordered the bank to pay a $1.7 billion fine and refund more than $2 billion to customers for “widespread mismanagement” of auto loan, mortgage and consumer deposit accounts.
“The bank’s illegal conduct led to billions of dollars in financial harm to its customers and, for thousands of customers, the loss of their vehicles and homes,” the CFPB said in a news release.
Criticism from regulators and lawmakers
Wells Fargo’s home lending business has also been a subject of criticism in recent years.
Last fall, the bank was fined $250 million by the Office of the Comptroller for failing to properly compensate consumers harmed by the bank’s improper mortgage and auto lending practices in prior years.
The bank has also faced criticism of its mortgage business related to racial equity concerns. In March, a Bloomberg investigation found that the bank approved fewer than half of Black homeowners’ mortgage refinancing applications in 2020, compared with 72% of white applicants. That led to a class-action lawsuit against the bank.
Eleven senators called for a review of the bank’s mortgage refinancing processes.
This story was originally published January 10, 2023 7:07 PM.
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Hannah Lang covers banking, finance and economic equity for The Charlotte Observer. Her work has appeared in The Wall Street Journal, the Triangle Business Journal and the Greensboro News & Record. She studied business journalism at the University of North Carolina at Chapel Hill and grew up in the same town as her alma mater.
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