Wells Fargo Pulls Back from Home Mortgage Lending

Wells Fargo doesn’t want to be the largest US home mortgage lender anymore.

The bank announced this week it will “significantly” shrink its mortgage-servicing portfolio via sales of assets. The lender also is closing its Correspondent business, a unit that buys loans made by third-party lenders.

In what it described as a strategic shift, Wells Fargo said it is transitioning to a “smaller, less complex business” that now will focus on loans for existing bank customers and wealth management clients, as well as lending to underserved communities.

Presumably, a smaller, less complex business also will enable the San Francisco-based bank to do a better job of avoiding the widespread illegal practices it has been accused of engaging in by federal regulators, who assessed a record $3.7B fine against Wells Fargo last month.

“Mortgage is an important relationship product, and our goal is to continue to be the primary mortgage lender to Wells Fargo bank customers as well as minority homebuyers. We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” said Kleber Santos, CEO of Consumer Lending at Wells Fargo, in a statement.

Wells Fargo said it is investing $100M “to advance racial equity in homeownership” through strategic partnerships with non-profit organizations and by deploying additional Home Mortgage Consultants in communities of color. The bank also said it will expand its $150M Special Purpose Credit Program (SPCP)—a program it launched in April to help Black and Hispanic customers refinance their mortgages—to include purchase loans.

Wells Fargo is not positioning the downsizing as a response to the collapse of the lending market during the Fed’s campaign of rate increases—or to the record $3.7B in penalties the Consumer Financial Protection Bureau (CFPB) assessed against the company last month for what CFPB said was widespread illegal mismanagement of more than 16M consumer accounts.

In assessing the fines—$2B of which are earmarked to redress the bank’s customers, while the balance is a civil penalty for the violations—CFPB said Wells Fargo had repeatedly misapplied its customer’s loan payments, wrongfully foreclosed on homes, illegally repossessed vehicles, incorrectly assessing fees and interest, and charged surprise overdraft fees.

Santos didn’t mention the CFPB fines in explaining the bank’s decision to change course this week. Instead, the Wells Fargo lending chief referenced a 2016 scandal in which the bank was revealed to have created more than 3.5M fake accounts for people who had not opened them.

“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence. As part of that review, we determined that our home-lending business was too large, both in terms of overall size and its scope,” Santos told CNBC.