Thread regarding Wells Fargo & Co. layoffs

A 'parabolic move' in the market
To some degree the Wells Fargo exits are tied to the cycle, analysts said.
Low rates and fat profit margins have increased the ability of nonbank lenders like Guaranteed Rate and LoanDepot to poach talent, adding a tailwind to some of the exits.
"2020 for mortgage issuers was a parabolic move in the market, almost hyperbolic," said Ken Leon, director of equity research at CFRA, adding that the type of growth seen last year at competitors like Rocket Mortgage will be "very difficult to duplicate."
Despite the departures, Wells Fargo's mortgage revenue jumped 19% over the previous year as first-quarter origination volume reached its highest level in five years. Wells' biggest bank competitor in mortgages, JPMorgan Chase, turned in a 26% increase. But US Bank reported a 24% decline in mortgage revenue across residential and commercial lending.
And at Wells' biggest nonbank competitor, Rocket Companies, net revenues surged 236% over the same period last year, though the figure doesn't break out how much of that came from home lending.
Wells Fargo originated about $54 billion in mortgages in the fourth quarter, good enough to rank fourth nationally, according to data compiled by Bloomberg. The first three spots were taken up by nonbank mortgage lenders , accounting for almost $240 billion among them. Lower down the rankings, LoanDepot did $37 billion, while Guaranteed Rate did about $24 billion.
The question then, according to Leon, is, "Can they still take their numbers higher if loan volume is going to be lower?"
Mortgage bankers bear the brunt of the asset cap
Wells Fargo's conservative underwriting guidelines have also hampered mortgage bankers, who found it difficult to compete against other players in the market, sources said.
In San Francisco, for example, Wells Fargo insisted borrowers needed 25% down to get a condominium mortgage up to $2 million, one of the people said. While other lenders made similar adjustments for COVID-19, they were typically temporary. Wells Fargo's policy remains in place, the person said.
Around June, Wells decreed that borrowers couldn't use rental income on a second or third property when calculating their affordability for loans that are too big to qualify for Fannie Mae or Freddie Mac, the person said. Both policies meant losing business to crosstown rivals like Guaranteed Rate or LoanDepot. In March, Wells Fargo reversed that decision.
Goyda said Wells Fargo made the changes as part of prudent risk-management practices.
"As the pandemic unfolded last year, for example, we made a few changes to underwriting criteria for nonconforming loans that we believe best served the interests of our customers for the long term and addressed concerns related to health and safety, credit and market risks, and prudent balance-sheet management," he said.
Three people who spoke to Insider said they think the bank's decision to set higher bars — which slowed the pace of loan growth for some bankers — was directly related to the asset cap that the Federal Reserve imposed on the bank in 2018.
No one said that Wells Fargo managers or executives specifically blamed the asset cap for keeping policies that put the bank at a disadvantage to other lenders. But top producers' jumbo mortgages were too big to be sold to Fannie Mae or Freddie Mac, meaning they were often housed on the bank's balance sheet.
The difficult task of righting the massive ocean liner that is Wells' consumer business has fallen to Mary Mack, who's been with the firm for more than 35 years and took charge of the consumer and small-business banking division after a stint leading the bank's retail brokerage.
Mack ran consumer lending in addition to consumer banking for a number of years before handing off oversight of the consumer lending to Mike Weinbach, who was hired in February 2020 after more than 16 years in home lending and other roles at JPMorgan Chase.
Some of these exits, then, are likely attributable to the turnover within the highest rungs of Wells Fargo's leadership. Charles Elson, a finance professor at the University of Delaware specializing in corporate governance, said that at any institution emerging from scandal, turnover would naturally be highest within the divisions where issues were most endemic.
And at Wells, of course, this was in the bank's consumer business.
"You reshuffle leadership. You've freed a lot of people below to move in different directions," Elson told Insider. "You've upset the status quo."
Preferential treatment for top producers
Kristy Williams Fercho took over the bank's home-lending division in August, replacing Michael DeVito, a 23-year veteran of the bank. Fercho's arrival wasn't enough to stem the exits in the first few months of 2021.
Fercho has overseen some process improvements this year that Goyda said were intended to address some of the concerns that loan officers had raised. The bank set up a new "retail operations structure" intended to close loans more quickly with fewer problems.
"We want our home-mortgage consultants to be successful in their jobs and are continuously working to improve the underwriting and fulfillment operations that support them in serving our customers," Goyda said. "In just the first few months, those changes already are making a difference."
Producers say that the administrative, compliance, and underwriting policies weren't their only source of frustration, however. The bank was sometimes more lax in enforcing policies with some top producers, three of the people said.
Management drew a clear line in the sand between the highest-value producers within home lending at Wells Fargo — who might make several hundred thousands of dollars a month in commissions — and everyone else, according to one person.
There were also at least two people who were able to maintain their own book of business and clients despite also serving as a branch manager, the person said, a practice that was banned seven years ago.
$1 billion in annual production
At the very top of the hierarchy is Alber Saleh, a salesman in Marin County, California, who originates $1 billion a year in mortgages as Wells Fargo's top producer, according to one person. Saleh joined Wells when Washington Mutual collapsed in 2008.
According to some former employees, Saleh enjoys preferred access to underwriters and a lending officer. Everyone else has to use a pool of underwriters who are often overworked and can be slow to process loans.
Goyda acknowledged that top producers may get access to company resources unavailable to other salespeople: "Our highest-producing HMCs may receive additional marketing and administrative support, depending on their production level."
But Goyda said all producers, even the most successful, are "held to the same quality, service, pricing and compliance standards."
Nonetheless, the former salespeople whom Insider spoke to chafed at the preferential treatment they interpreted as being showered on favorite producers. "They have their favorites that are pretty sheltered," one of the people said. "If you are in one of those sweetheart deals, you don't have to go through the normal channels."
Julian Hebron, founder of The Basis Point, a strategy consultancy to banking, housing, and fintech firms and a former Wells Fargo executive, acknowledged that banks might give preferential treatment to top producers by allowing them to more quickly cut through layers of bureaucracy. But at the end of the day, the underwriting decision should be the same regardless of who's originating the loan, he said.
Ultimately Hebron said he expects some of the migration of loan officers away from banks like Wells Fargo will reverse in the coming years.
The tailwinds buoying the trend aren't likely to persist as a favorable backdrop reverses for nonbank lenders, he said. And as rates increase and profit margins shrink, Wells Fargo's bank deposits will provide a cheaper source of funding. And if the Fed lifts the asset cap, as it has told the bank it could do, that might also make Wells a more attractive place to work.
"Some loan officers in high-priced markets who left big banks for nonbanks will return," Hebron said. "The honeymoon will end."