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Wells Fargo could soon be rid of a $1.95 trillion asset cap that’s limited the bank’s growth after the Consumer Financial Protection Bureau lifted a 2018 consent order aimed at resolving issues in mortgage and auto lending, the bank confirmed Monday.
It’s the 12th consent order closed by Wells Fargo’s regulators since 2019 and the sixth this year, leaving in place only two of the 14 consent orders drawn up by regulators recent years over concerns about the bank’s past business practices.
Charlie Scharf
“I am proud of the work done by our teams and remain confident that we will complete the work needed to close our other open consent orders,” Wells Fargo CEO Charlie Scharf said in a statement. “Wells Fargo is a different and stronger company today as we focus on creating long-term value for our customers, clients, communities and shareholders.”
The latest consent order to be lifted was tied to the CFPB’s issues with how some borrowers were charged for mortgage interest rate-lock extensions, and the bank’s administration of a mandatory insurance program on auto loans. The CFPB fined Wells Fargo $1 billion in that enforcement action and drew up a consent order outlining how the bank would remedy the issues.
Wells Fargo had previously announced in January that the CFPB had lifted a 2022 consent order related to a $3.7 billion settlement over the bank’s alleged mismanagement of mortgages, auto loans and deposit accounts.
The Federal Reserve Board in February lifted two 2011 consent orders tied to alleged deficiencies in mortgage loan servicing and mortgage lending practices at a former Wells Fargo subsidiary.
Wells Fargo’s progress in closing consent orders, along with the Trump administration’s push to loosen regulations, means an asset cap that has limited the bank’s growth could be lifted as soon as the second quarter, RBC Capital Markets analyst Gerard Cassidy told Reuters.
The CFPB under the Trump administration has dropped at least nine pending consumer lawsuits, and has also taken the unusual step of attempting to undo a fair lending settlement negotiated by the bureau before the November election.
But Scharf said that doesn’t mean regulators are more relaxed about lifting consent orders than they were during the Biden era.
“I [have been] very consistent in my belief that the regulators are objective when it comes to these things,” Scharf told investment analysts on the bank’s April 11 earnings call. “They’re very fact-based. They want to see us do the work. They want us to do their validation. And if we do that, they’ll close the orders. I don’t think the change in administration suggests that we need to do anything differently.”
But broader regulatory changes that are being discussed by the Trump administration for the banking industry as a whole, “would allow us to better support our customers,” Scharf said. “That means make more loans, take more deposits, and provide more liquidity to the markets, while still preserving robust regulatory oversight.”
If Wells Fargo’s asset cap is lifted, it could have more room on its books to originate and hold jumbo mortgages that exceed Fannie Mae and Freddie Mac’s $806,500 conforming loan limit in most markets. Lenders who make such loans often hold them on their balance sheet, since they’re more difficult to bundle up and sell to investors.
Scharf said that while the asset cap remains in place, Wells Fargo will do what it has for the past several years, which is “focus on growing businesses where we don’t rely on our balance sheet,” like credit cards and wealth management services.
But once the asset cap is lifted, that will give Wells Fargo more leeway to expand its deposit base and fund more loans, he said.
“We are a different company today than when this new management team arrived,” Scharf said. “These recent closures reflect that we have completed much of the common risk and control infrastructure work across the company that is required by other orders.”
The fact that the consent orders are closed “doesn’t mean we’re going to stop doing the work,” he said. But Wells Fargo can operate more efficiently, “because now we have a much better understanding of the control environment and how to run it properly.”
While Scharf wouldn’t put a number on how much Wells Fargo might grow its deposit base and loan fundings when the asset cap is lifted, “it does give us more degrees of freedom in terms of how we run the place.”
Wells Fargo’s dwindling appetite for mortgages
Source: Wells Fargo earnings reports.
Once the nation’s largest mortgage lender, Wells Fargo was overtaken by direct lender Quicken Loans (now Rocket Mortgage) in 2017.
As rising mortgage rates put an end to the pandemic era refinancing boom, Wells Fargo’s mortgage volume also shrank as bank executives reassessed their appetite for risk as a buyer of mortgages from correspondent lenders.
In January 2023, Wells Fargo shut down the bank’s correspondent lending channel and announced a new strategic direction in home lending — a smaller, less complex business focused on the bank’s existing customers and minority communities.
With all of Wells Fargo’s mortgage business now coming through its retail channel, it originated just $20.2 billion in loans last year, less than a tenth of the $223 billion in mortgages originated during the 2020 refinancing boom.
In reporting a $4.9 billion first-quarter profit on April 11, the bank said it originated $4.4 billion in mortgage loans, up 26 percent from Q1 2024.
Growth in both purchase mortgages and refinancings helped drive the double-digit annual growth in home lending, and Wells Fargo continues to streamline the business with headcount down 47 percent, Wells Fargo Chief Financial Officer Mike Santomassimo said on the April 11 earnings call.
More customers, fewer branches
Source: Wells Fargo earnings reports.
With 4,155 branches open as of March 31, Wells Fargo has trimmed its branch count by 22 percent from the 5,325 branches open at the end of 2019 on the eve of the pandemic.
Wells Fargo continues to shrink its brick-and-mortar operations, closing 22 branch offices during the first quarter.
But Wells Fargo also boosted its “mobile-active” customer count by 30 percent since 2019, to 31.8 million as of March 31. That growth continued in Q1, with the bank adding about 400,000 mobile-active customers — consumers and small business users who have logged into their accounts using a mobile device in the past 90 days.
While Wells Fargo is scaling back its brick-and-mortar presence, it is investing in refurbishing the branches that will stay open, accelerating the process in 2024 by completing 730 branch makeovers.
Scharf said Wells Fargo continued to invest in refurbishing its branches during the first quarter, and following the termination of a sales practices consent order over a year ago, has been taking “measured actions” to generate “modest growth” of metrics like net checking account growth and credit cards originated in branches.
“When we think about our consumer lending business, almost all of our businesses in our consumer lending segment are earning far below the ROTCEs (return on tangible common equity) that they should be earning for different reasons,” Sharf said.
Wells Fargo’s investments in building its credit card business, for example, are “front-loaded,” with modest returns as balances grow over time.
“But as long as the results play out on top of the models that we assumed, we know that’s just a matter of time until those returns increase significantly,” he said.
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