Wells Fargo said Tuesday it will make big cuts in its mortgage business. The bank is one of the largest real estate lenders in the country.
File image
Wells Fargo is one of the nation’s largest mortgage lenders — but maybe not for much longer.
The bank announced Tuesday that it will pull out of the home loan business, a move that could lead to significant job cuts for one of Charlotte’s largest employers.
Wells Fargo plans to exit home loan servicing operations, the bank said, and completely stop correspondent lending. That business, through which Wells Fargo buys mortgages from third-party lenders, made up a significant portion of its real estate lending operations.
Instead, the bank will focus on lending to existing clients and minority communities, according to a press release.
“We have decided to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Kleber Santos, Wells Fargo’s chief executive of consumer lending, said in a statement.
The move marks the retreat of one of the industry’s mortgage giants as the industry struggles 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 change is likely to lead to layoffs, said Kyle Sanders, an equity analyst at Edward Jones.
“This is just another example of new leadership putting its stamp on (Wells Fargo’s) strategic direction,” Sanders told The Charlotte Observer. “The mortgage market is currently facing significant challenges and they are not afraid to act.”
Wells Fargo is headquartered in San Francisco, but has its largest workforce in Charlotte, with about 27,000 workers here.
Mortgage profits plummet
Like many other banks, Sanders said, Wells Fargo saw its home loan business decline in 2022.
The real estate market boomed during the pandemic, as mortgage rates fell to historically low levels and consumers grabbed cheap loans. But those rates began rising last January, in anticipation of multiple rate hikes by the Federal Reserve.
As borrowing costs rose, fewer Americans sought mortgages or refinances, and sources of loans shrank sharply. By spring, lenders were already laying off workers — including dozens of job cuts in Charlotte.
In October, Wells Fargo reported a 52% year-over-year decline in quarterly home loan earnings.
“It’s just a harder job,” Sanders said. “They will reduce the number of employees to protect profitability.”
Recent profits are also weighed down by a $3.7 billion regulatory charge from the Consumer Financial Protection Bureau, levied late last year.
The CFPB said in December it ordered the bank to pay a $1.7 billion fine and refund more than $2 billion to customers for “widespread mismanagement” of auto loans, mortgages and consumer deposit accounts.
“The bank’s illegal conduct has resulted in billions of dollars in financial damages to its customers and the loss of vehicles and homes for thousands of customers,” the CFPB said in a press release.
Criticism of regulators and legislators
Wells Fargo’s real estate lending business has also come under fire in recent years.
Last fall, the Comptroller’s Office fined the bank $250 million for failing to adequately compensate consumers harmed by the bank’s inappropriate mortgage and auto lending practices in previous years.
The bank has also faced criticism over its mortgage business over concerns about racial equity. In March, a Bloomberg survey found that the bank approved less than half of black homeowners’ applications for mortgage refinancing in 2020, compared with 72% of white applicants. This led to a class action lawsuit against the bank.
Eleven senators called for a review of the bank’s mortgage loan refinancing process.
This story was originally published January 10, 2023 at 7:07 p.m.
Hannah Lang covers banking, finance and economic justice 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.