Wells Fargo-Trimont Deal Should Work Out Well for Everyone

Wells Fargo selling its non-agency third-party servicing segment of its CRE mortgaging service business to Trimont has been a big deal. In the long run, it seems like a smart move for both companies and probably for the industry as well.

After the expected closing in 2025, Trimon says it expects to manage more than $715 billion in U.S. and international CRE loans. Värde Partners, an alternative investment firm that has owned Trimont through various funds, will provide funding for the transaction. Bloomberg reported that Trimont will pick up servicing for about $475 billion of loans.

While the move on Well Fargo’s part might seem like a pullback from commercial lending, CNN wrote, “Wells Fargo’s deal to sell off its non-agency third-party Commercial Mortgage Servicing business comes as the banking sector in the United States faces increasing pressure due to elevated interest rates and challenges in the commercial real estate market.”

According to Marc Grayson, president and co-founder of CRE lender and investor RRA Capital, the actual dynamics are probably different because of the nature of mortgage servicing. “You’re collecting those payments for somebody else,” he told GlobeSt.com. “That’s pretty resource intensive. It’s a steady business line and thin margins, so scale and efficiency are key there.”

Low margins in this case could typically range from five to 50 basis points, depending on the size of the mortgage and other factors. The reason is considerably less risk than originating or holding CRE mortgages. “You’re managing the loan, it’s a fee business,” said Grayson. If there’s additional work to be done, it would increase the fees.

“Even though it’s a large transaction, I don’t think it’s going to send shockwaves through the industry,” Grayson said. “There are a large number of servicers out there still. This won’t overly tip the scales.” He added Trimont has a “good focus” and from what he knows, the company is “a great servicer.”

“What a win for them to be able to acquire the servicing rights to this portfolio” from Wells Fargo, said Grayson.

As for Wells Fargo, in its 2023 annual report, chief executive Charles Scharf wrote that the company was “investing to build a faster-growing and a higher-returning company, while we in parallel work to become more efficient.” CRE mortgage servicing for third parties is almost by definition the opposite of where the company wanted to go.