What’s next for Wells Fargo as it continues to retreat from the mortgage industry?
Two years ago, the mortgage business was booming, and that was good news for banks like Wells Fargo.
Interest rates hovered near zero and home loans were a bargain. Many consumers bought new property, while others refinanced to take advantage of low rates.
But within the last year, that business screeched to a halt: the inflation rate rose and interest rates increased alongside it. The housing market slowed, refinancing applications dried up and mortgage firms across the country slashed staff.
Last month, Wells Fargo took it a step further. The bank announced it would permanently shrink its home lending division, halting its correspondent lending business — through which Wells Fargo buys mortgages made by third-party lenders — and selling off chunks of its loan servicing operations. The former made up about 43% of its new mortgages last year.
But the San Francisco-based bank hasn’t shared details on how those changes will impact workers and operations in Charlotte, its largest employment hub. In response to repeated questions from The Charlotte Observer, Wells Fargo also declined to say whether shrinking its mortgage division will lead to layoffs in the region.
The changes to its mortgage operations were spurred in part by regulatory scrutiny: a $3.7 billion charge from the Consumer Financial Protection Bureau took aim in part at the bank’s mortgage division, citing “widespread mismanagement” of its accounts.
A smaller home lending operation at Wells Fargo translates to hundreds of job cuts across the bank, which just a few years ago was the largest mortgage lender in the country.
“Wells Fargo’s been one of the die-hard, in-the-mortgage-market-with-both-feet banks out there for many years now,” said Guy Cecala, executive chair of Inside Mortgage Finance, an industry publication. “It’s not surprising that they cut back… (but) to eliminate 43% of your business overnight is a big change for anybody.”
Gauging the local impact
It’s likely that the majority of mortgage layoffs at Wells Fargo have taken place already, Cecala said.
“They were already cutting back on staffing (last year),” Cecala said, noting that the bank already paid out more than $300 million in severance in the fourth quarter.
In a January earnings call, Wells Fargo CFO Mike Santomassimo said the bank has reduced headcount in home lending throughout 2022.
The changes to the bank’s mortgage business aren’t expected to have a significant impact on its financial results this year, he said. That’s mostly because the business has already fallen off: in December, mortgage refinancing applications at Wells Fargo were down 87%, Santomassimo said.
In places like Des Moines, Iowa, where the bank’s mortgage division is based, cutbacks have been severe. The bank laid off about 425 workers there through 2022, the Des Moines Register reported.
According to WARN notices filed with Iowa Workforce Development, the bank conducted more than 10 rounds of layoffs in the Des Moines metro area last year. Those filings are required by law when companies are conducting mass layoffs at a single site.
The bank hasn’t filed any such notices in North Carolina or South Carolina.
That should signify that no mass layoffs at the bank in those states, said Jeffrey Hirsch, a distinguished professor at UNC School of Law who focuses on labor and employment law.
But it doesn’t mean the bank hasn’t cut any jobs here. Companies can lay off fewer workers or spread larger cuts across cities to reduce their workforce without filing a public notice, Hirsch said.
“It may be the case that a company has structured layoffs in a way that, in any one location, it doesn’t trigger (the law that requires the filings).”
What’s next for Wells Fargo?
Wells Fargo will probably move quickly to make changes to its mortgage operations, said Christopher Marinac, director of research at Janney Montgomery Scott. “I would think that it’s a six-month process, and that they’re going to make it happen pretty quickly,” he said.
On January’s earnings call, Santomassimo told analysts that the bank’s exit from correspondent lending would be “substantially complete” by the end of the first quarter.
It’s likely that Wells Fargo executives may also view shrinking the mortgage business as a way to satisfy regulators, Marinac added. “They may feel that it’s too difficult to get right, and it’s better to just focus on their core customers,” he said. “They may look at it as ‘We’re just going to take our marbles and go home.’ ”
The mortgage business may pick back up in the spring as home sales rise, Marinac said, which could bring back some jobs at other lenders. But regulatory concerns at Wells Fargo likely mean this transformation is much more permanent.
In the meantime, the bank isn’t showing any signs of a disinvestment in Charlotte.
Last Tuesday, in a memo to employees, the bank said it was investing hundreds of millions in sprucing up its local offices.
“We want to create the environment where people want to be here,” consumer and small business banking executive Mary Mack told The Charlotte Observer.
And just because the bank is dialing back its mortgage behemoth doesn’t mean you can’t walk into a branch and apply for a home loan.
Mortgages are still an important part of retail banking, Cecala said. It’ll be a core part of the bank’s business, even with a scaled-back approach.
“Getting a mortgage is pretty much the biggest loan or financial transaction that anybody has in this country,” he said. “The bottom line is that no major bank can abandon mortgage lending completely.”
This story was originally published February 6, 2023 at 5:55 AM with the headline "What’s next for Wells Fargo as it continues to retreat from the mortgage industry?."
