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Wells Fargo, once the nation’s leading provider of home loans, announced Tuesday it will no longer buy mortgages from correspondent lenders as part of a strategy to better serve the bank’s customers and minority communities.
Correspondent lenders are typically smaller institutions who originate and fund their own loans, then resell them to other lenders or investors. Bloomberg reported in August that Wells Fargo was eyeing a “major retreat” from mortgage lending that would include scaling back or shutting down its correspondent lending channel, with executives reportedly concerned about the financial and reputational risk of buying mortgages from third parties.
On Dec. 20, Wells Fargo announced it had agreed to pay $3.7 billion to settle allegations by federal regulators that it harmed millions of consumers over a period of several years through widespread mismanagement of mortgages, auto loans and deposit accounts.
But in announcing the bank’s exit from correspondent lending, Wells Fargo said it was continuing work the company has pursued over the past three years to “simplify” its approach to mortgages.
“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,” said Wells Fargo’s head of consumer lending, Kleber Santos, in a statement. “We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus.”
Although Wells Fargo has also been closing retail branches in recent years, the bank said it plans to hire more home mortgage consultants to work in minority communities.
Wells Fargo will broaden an existing $150 million investment from the company’s Special Purpose Credit Program (SPCP) to include purchase loans, and invest an additional $100 million to advance racial equity in homeownership by investing in strategic partnerships with non-profit organizations and community-focused engagements.
Kristy Fercho, Wells Fargo’s head of home lending and diverse segments, representation and inclusion, said in a statement that the bank “will continue to expand our programs to reach more customers in underserved communities by leveraging our strong partnerships with the National Urban League, UnidosUS and other non-profit organizations.”
While correspondent lenders have at times generated more than half of Wells Fargo’s mortgage production, they accounted for a smaller share during the pandemic, when low interest rates spurred a refinancing boom among existing borrowers.
Wells Fargo mortgage originations by channel
Source: Inman analysis of Wells Fargo regulatory filings.
After dipping to a low of 31 percent during the second quarter of 2021, the share of Wells Fargo mortgage originations generated by correspondent lenders rebounded as rising rates put an end to the refi boom.
In last year’s shrinking mortgage market, Wells Fargo was once again increasingly dependent on correspondent lenders, who accounted for 42 percent of the bank’s mortgage loan production during the third quarter.