Wells Fargo to Pull Back from Mortgage Market and Exit Correspondent Lending

Author: Henry Theodore

Wells Fargo recently made headlines by announcing a new strategic direction that is centered on pulling back from the mortgage market by shifting the bank’s focus to existing customers and nonwhite communities. 

Based on the reports, Wells Fargo’s decision to step back from these businesses marks a significant strategy shift, and there are high assumptions that the decision will lead to a new round of layoffs. 

Let’s get to know more about Wells Fargo’s decision to shift on business strategy and operation. 

More about Wells Fargo’s Decision to Step Back from Mortgages

In 2019, it was reported that Wells Fargo had been part of the nation’s top home lender with $201.8 billion in volume. That’s why it is no surprise that many viewed that bank’s announcement as an identity shift, but it was never a surprise for some since the bank initiated hundreds of job cuts in its home-lending division. 

Well, the move contends with rising interest rates. This has quelled the bank’s consumer demand for refinancing and mortgages. 

Regarding the home-lending market, it was reported that there have been dismal over the past year. 

Wells Fargo’s revenue was even declared to experience a 52% drop in the third quarter while troubling a fall in mortgage originations as well. 

Hence, it is said that the shift in operation is an effort to reduce expenses to effectively lower origination volumes. The bank’s CFO also admitted that they expect the adjustments to last over the next couple of quarters, while the CEO said that the bank is in the process of changing strategically to fit the mortgage. 

Moreover, Wells Fargo CEO Charlie Scharf also expressed the bank’s plan of not wanting to be extraordinarily large in the mortgage business. Rather, Scharf said that the bank’s goal in its lending business is to connect with existing customers. That’s why the number of customers highly dictates the size of its mortgage business. Well, it is quite intriguing since the bank has been under fire because of its home-lending practices, leading to high controversies. 

The controversies are centered on the bank’s refinance applications, significantly approving more White borrowers than Black homeowners. 

Within the last few years, the bank had a significant and consistent percentage-point gap in refinance approval between the two groups of borrowers. 

Shortly, they are addressed with the bank saying that the business is deeply committed to advancing racial equity in homeownership. That is backed up by the bank’s plan to invest $100 million to advance racial equity. 

Ultimately, the point of the bank’s significant shift and changes in its lending business and mortgage servicing portfolio is to create better connections, focusing on the bank’s existing customers and minority communities. Along with that, Wells Fargo also announced the plan to hire additional mortgage consultants in communities of color—obviously an effort to solve the controversies about approving more White borrowers than people of color.

Takeaway

No doubt, Wells Fargo has had its fair share of controversies, which put the bank under fire regularly. From a series of consumer abuses to fake-accounts scandals, the bank has many people who wait to see if it will continue to be under regular scrutiny or if the major shift in operations will bring positive changes to its reputation.