Wells Fargo Correspondent Mortgage Lending – Close Text by Brad Finkelstein About Brad Twitter nmnbrad Email [email protected] LinkedIn Brad-finkelstein-8 b2b9a5 / August 17, 2022, 9:50 am 6 min Read
According to the Keefe, Brewitt & Wood report, Wells Fargo’s potential exit from the mortgage origination channel would compromise excess capacity for the mortgage origination business. The mortgage withdrawal by the big bank was first reported in a Bloomberg News article
Wells Fargo Correspondent Mortgage Lending
“Wells Fargo is committed to helping our customers and communities through our home loan business,” a bank spokesperson said. “Like others in the industry, we are dramatically reshaping our mortgage business to adapt to the smaller product market. We continue to look to prioritize and best position the company to serve our customers more broadly.”
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In the first half of the year, Wells Fargo generated $28.3 billion in correspondent channels, down 6.2% from $34.5 billion for the same period in 2021. Ironically, the decline in its retail output was much greater, with Wells Fargo’s correspondent output down 26.8% over the past five quarters, from $70.5 billion to $43.7 billion over the past five quarters.
“Wells Fargo has added stability to the correspondent market by consistently offering competitive pricing and excellent service through good times and bad,” said Tina Freeman, managing director of Mortgage Industry Advisory Corporation. This move will open up opportunities. Other news buyers, this could be a big loss for the industry. “
According to KBW estimates, the bank’s market share in correspondent lending was 5% to 6%.
“Eliminating that market share could benefit other large correspondent mortgage producers,” wrote KBW analyst Bosch George. “PenniMac Financial is the largest correspondent mortgage originator with 15% market share over the past 12 months. Other top correspondents are American Home (owned by Western Alliance Bancorp) and NewRage/Caliber (Rhythm).”
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Analysts at Pipe Sandler linked Mr. Cooper to press participants as likely to benefit from the Wells Fargo pullback. In the first quarter, price competition in the region caused Mr. Cooper to slow down his correspondent acquisition program.
“In our view, this is increasingly positive for the mortgage market as it suggests a more rapid decline in mortgage lending,” wrote Piper Sandler managing directors Kevin Barker and R. Scott Cyphers. This is also a positive development for correspondent lenders as it indicates that the second largest bank participant and previously the largest correspondent producer is no longer competing for loans.
As production volumes decline, some lenders have exited the channel to focus on other sectors. Celebrity Home Loans abruptly closed its correspondent unit Cyprus Mortgage Capital on August 10.
Meanwhile, Loan Depot, which posted a $224 million loss in the second quarter, is exiting the wholesale business. That third-party origination channel is working with its price war, led by United Wholesale Mortgage.
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If Wells were to follow suit, the mortgage industry would be a textbook example of how to get money back, said Jeff Mack, co-founder of South Florida-based lender Renaissance Home Loans.
Losing an established investor from a news channel reduces competition in a market with a limited number of companies, Mack said. “Wells Fargo has long been respected in the space, but as the total addressable market normalizes and we begin to see volumes comparable to pre-pandemic, many large companies are forced to right-size quickly.”
“If they decide to leave the channel, that liquidity could be absorbed by smaller correspondent investors, which could positively impact smaller lenders across the country,” Mack said. “Finally, the exit of major lenders from the jumbo market, which has traditionally been dominated by banks, may also provide opportunities for smaller lenders.”
But one industry compliance advocate sees darker implications as Wells’ decision to cut mortgages means over-regulation of the business.
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“When a leader like Wells Fargo publicly announces a decline in their mortgage business, it should clearly signal to the industry and the government how complex mortgages have become over the past decade,” said Robert Maddox, banking partner and practice group chair. Bradley Arant Bolt of the Financial Services Practice Group at Cummings says the irony is that the government and consumer advocates believe they are the protectors of the American consumer, but what they are actually doing is driving banks to reduce investment in American home ownership.
In its second-quarter earnings call, company executives warned of job cuts in Wells Fargo’s mortgage division as the company argued to reduce its footprint.
The primary reason lenders operate a correspondent business is to obtain mortgage servicing rights related to loans.
Wells Fargo serviced $673.8 billion in residential mortgages for investors as of June 30, according to a 10-Q filing. KBW cites a figure of around $3 billion, but it is possible that its banking services include loans in its own portfolio.
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CBW said Ginnie Mae’s servicing, primarily of Federal Housing Administration loans, accounts for 10% of Wells’ portfolio. And if a bank exits the correspondent channel, its servicing portfolio will shrink
George estimates that Wells’ portfolio would now be $28 billion smaller if it had exited Correspondent late last year.
George pointed out that there are few participants in the FHA origination and servicing business and, currently, they are primarily non-banks.
“With this in mind, we believe that if Wells Fargo significantly reduces its role in the FHA market, it could result in less availability in the channel and some higher rates,” George said. It also points to ongoing structural challenges in the FHA market, which have been a partial driver of strong growth in the home mortgage insurance sector.
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That could further erode FHA market share George recently calculated that private mortgage insurers (six now writing business, and three still with policies on their books) had a 55% share of total insurance-in-force as of June 30; FHA owns 45% of $1.19 trillion After private MIs regained market share dominance in the fourth quarter of 2020, the gap with FHA has been widening ever since.
In the second quarter, active private MI generated $120.9 billion, up from $104.1 billion in the first quarter but down from $148.56 billion a year earlier.
Shrinking the company’s servicing portfolio [Fannie Mae and Freddie Mac] should make it easier for other holders of MSRs to grow faster, George said. “We’ve seen strong growth in agency MSRs in some agency MBS REITs, notably Annalee and Two Harbors. New York (August 15): Wells Fargo & Co plans to shrink its vast mortgage empire, which once eliminated one in every three. houses.debt in the United States and made the bank for a time the nation’s most valuable
No longer committed to ranking No. 1 in the business, Wells Fargo’s leadership is preparing for a retreat that will likely begin with the bank’s relationship with an outside mortgage firm that originated a third of its $205 billion in new home loans last year. A person with knowledge of judgment
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The strategy change has come amid a reshuffle of executives and years of regulatory scrutiny and the bank’s reputational struggles.
Last year alone, flareups included $250 million in fines that hit borrowers hard, and that was also revealed.
Report that Wells Fargo, more than any other major U.S. lender, denied refinancing to more black homeowners than whites. Both issues are likely to come up when the heads of the big banks head to Washington next month for congressional hearings.
After the 2008 financial crisis, when major US banks collapsed, Wells Fargo was the only holdout whose mortgage did moderately well. Now, its executives are preparing plans to spin off related businesses, such as new lending and debt servicing. A senior executive said it would be surprising if Wells Fargo’s mortgage business ended up like JPMorgan Chase & Co today. While many details are still being worked out, the focus will be on lending to people the bank has a relationship with or where it already has a presence.
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Wells Fargo is committed to supporting our customers and communities through our home lending business, the San Francisco-based company said in a statement. “Like others in the industry, we are re-evaluating the size of our mortgage business to accommodate a dramatically smaller product market. We continue to look to prioritize and best position the company to serve our customers more broadly.”
The debate over what to do with the mortgage franchise has been raging within Wells Fargo for months, and public opinion began to converge last week.
The retrenchment includes potential paring, or so-called correspondent mortgage lending, in which Wells Fargo would finance the loan used by outsiders, the people said. Channels offer benefits but also risks Some banks use correspondent lending to diversify
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