Below is the entire article
-
Wells Fargo’s CEO suggested more rocky days may be ahead for the bank’s mortgage business.
-
The home lending unit won’t “be as large” because it’s not a “standalone profit center,” Scharf said.
-
Scharf also cited the “reputation” challenges of underwriting loans for Fannie Mae and Freddie Mac.
On Wednesday, Wells Fargo CEO Charlie Scharf said the bank’s embattled mortgage business could have a smaller footprint in the future — and suggested criticism of Wells Fargo’s home lending practices are partly to blame.
Speaking at Bernstein’s annual Strategic Decisions conference in New York City, Scharf said that Wells Fargo is “in the process of changing strategically where mortgage fits in,” adding that “mortgage is a hard business.”
Scharf cited in part the lending standards for conforming loans set by government-sponsored entities like Fannie Mae and Freddie Mac, according to a transcript of his remarks from data provider Sentieo.
“We basically process the applications according to guidelines that the GSEs tell us we should. When those produce results, the people like them, we get the kudos for it. If they don’t like them, we get the blame for it even though we’re just following other people’s underwriting guidelines,” Scharf said.
“There are some things like that which do put you in a difficult position, which we do need to be very thoughtful about from a reputation perspective,” he continued.
This March, Bloomberg reported that in 2020, Wells Fargo rejected more than half of Black homeowners refinancing applications. The bank’s 47% approval rate for Black customers was the lowest among major lenders according to federal mortgage data, Bloomberg said.
According to Bloomberg’s analysis, Wells Fargo broke with industry-wide trends by accepting fewer refinancing applications from Black borrowers in 2020, a pandemic bo-m year for refinances as interest rates fell, than it did a decade earlier.
Given the standards banks are held to relative to other
mortgage lenders
, Scharf said, “It’s very different today running a mortgage business inside the bank than it was 15 years ago, and I think appropriately so. That does force you to sit back and say, ‘What does that mean? How big do you want to be? Where does it fit in?'”
In a statement provided to Insider, a spokesperson for Wells Fargo said, “Recent media stories ignored critical information about Wells Fargo’s lending to Black homeowners and the full range of our efforts to help meet the homeownership needs of diverse customers, and relied on an analysis that presents a skewed picture of our lending performance.”
“Most importantly, we are confident that our underwriting practices are consistently applied regardless of the customer’s race or ethnicity,” the spokesperson added.
Wells Fargo, the spokesperson also said, funded “twice as many loans overall” to Black borrowers in 2020 as the next largest bank, if loans originated and purchased from correspondent sellers were included.
Home lending layoffs
Scharf said home lending will remain an important part of Wells Fargo’s business even as the bank considers trimming its mortgage footprint.
“Mortgage and home lending generally is extremely important to what we do as a company, both for our customers and the communities that we serve. We are very committed to ensuring that we continue to support those two populations,” Scharf said.
But its decision to focus on those populations could also mean Wells Fargo “won’t be as large as we were historically,” he continued.
In addition to the reputational challenges of dealing in GSE loans, he also cited profitability concerns.
“We don’t think of it as a standalone profit generator, where you have production, servicing, balancing. Those days are gone in terms of the right way to think about it inside our company,” Scharf said.
Scharf’s comments on Wells Fargo’s underwriting business echoed those recently made by the bank’s head of diverse segments, representation, and inclusion, Kleber Santos.
This May, Santos told Insider that criticism over the bank’s low approval rates for Black borrowers was misplaced. But while Santos also said Fannie Mae and Freddie Mac’s own underwriting guidelines were to blame for any gaps in refinancing approvals, he didn’t suggest Wells was reconsidering its approach to its home lending business. Instead, Santos said, Wells Fargo was looking to speak to industry executives on changing current application criteria.
Scharf also discussed the layoffs impacting Wells Fargo’s mortgage business in recent months.
This April, Insider reported that Wells Fargo laid off home lending employees, including loan processors and underwriters, across at least five markets like San Antonio, Phoenix, and Des Moines. The job cuts come as rising interest rates lead to falling mortgage volumes across the industry. This spring, Wells Fargo reported that home lending revenues fell to $1.5 billion in the first quarter of 2022, down 33% on the same period last year.
“In this kind of environment, that means that we’ll have less people, and we’re doing what’s necessary for that to happen. From a production side, making sure that we’re again properly staffed to process the business but not beyond what’s necessary in this environment,” Scharf said.
Scharf added that there’s roughly a quarterly lag to how quickly Wells can take costs — including by laying off employees — out of the mortgage business. He added that while job cuts in the mortgage business get bad press, “every mortgage business is doing it,” and that Wells has worked to place mortgage employees in other openings across the bank.