Friday, May 24, 2024

Wells Fargo plans major cuts in home lending, servicing

Wells Fargo said it will focus its powerful home mortgage business on existing bank and wealth management customers and minority customers, pulling back from its previous strategy of reaching a broad swath of Americans.

The bank said the decision stemmed from a collapse in the lending market since the Federal Reserve began raising rates last year and questions about the long-term profitability of the business, consumer lending chief Kleber Santos told CNBC. Wells Fargo has faced major scrutiny after its 2016 fake accounts scandal.

“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” Santos 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.”

CEO Charlie Scharf has taken major action at Wells Fargo since joining the bank in 2019. undertaken since joining Wells Fargo in late 2019. Under Scharf’s predecessors, Wells Fargo was the country’s top lender as recently as 2019 when it had $201.8 billion in volume, according to industry newsletter Inside Mortgage Finance.

The move is likely to spark layoffs at Wells Fargo, which is one of North Carolina’s largest private employers, including 27,000 people in the Charlotte area. “This is just another example of the new leadership putting their thumbprint on the strategic direction of (Wells Fargo),” Kyle Sanders, an analyst at Edward Jones,  told The Charlotte Observer.

In October, Wells Fargo reported a 52% decline in quarterly earnings from home lending.

Wells Fargo is also closing its correspondent business that buys loans made by third-party lenders and “significantly” shrinking its mortgage-servicing portfolio through asset sales, Santos told CNBC. Servicing involves collecting payments from borrowers.

In October, the bank said 42% of the $21.5 billion in loans it originated in the third quarter were correspondent loans.

The sale of mortgage-servicing rights to other companies will take at least several quarters to complete, depending on market conditions, Santos said. Wells Fargo is the biggest U.S. mortgage servicer with nearly $1 trillion in loans, or 7.3% of the market, according to data from Inside Mortgage Finance.

Scharf has split the bank’s operations into five divisions, added 12 new operating committee members and created a diversity segment.

For 40 years, sharing the stories of North Carolina's dynamic business community.

Related Articles