Wells Fargo says it is making major cuts in its home lending business, a move that could result in more job losses in the Des Moines metro, where the division ― its largest private employer ― has already laid off hundreds of employees as rising interest rates have cratered the mortgage market.
The San Francisco-based company said Tuesday it will exit its correspondent business — the purchase of mortgages that are originated by other lenders — and otherwise reduce the size of its mortgage servicing portfolio. It said in a statement that it “plans continue the work the company has advanced over the past three years to simplify this business.”
Kleber Santos, CEO of Wells Fargo consumer lending, told CNBC that the decision was a result of a review launched after a 2016 scandal over setting up fake accounts in customers’ names.
“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” Santos told the business news outlet. “As part of that review, we determined that our home-lending business was too large, both in terms of overall size and its scope.”
The bank was once the largest mortgage lender in the US, and more recently still ranked third. It remains under a Federal Reserve order forbidding it from growing any larger until the Fed deems that its problems are resolved. That order, originally enacted in 2018, was expected to last only a year or two.
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Effect on Des Moines metro jobs unclear
Wells Fargo didn’t immediately respond Tuesday to questions about how the announcement might affect the company’s Des Moines metro employment, particularly in West Des Moines, where the mortgage division is based.
The company in its third quarter financial statement for 2022 reported that the correspondent business represented 42% of its loan originations, and said in its statement that it would be “optimizing the Retail team to focus primarily on bank customers and underserved communities.”
CEO Charlie Scharf statement said in a December statement that Wells Fargo expected its operating losses expense for the quarter ending Dec. 31 would be about $3.5 billion, including the repayment of consumers and the federal penalty. Full fourth quarter financial results will be reported Friday.
Wells Fargo already had cut about 425 jobs in the Des Moines metro area through 2022, according to notices filed with Iowa Workforce Development. It employs about 13,000 workers in the metro.
Last month, the lending giant agreed to pay a record $3.7 billion to settle charges it harmed customers by charging illegal fees and interest on auto loans and mortgages, as well as incorrectly applying overdraft fees against savings and checking accounts.
The US Consumer Financial Protection Bureau’s penalty consists of $2 billion in repayments to consumers and a $1.7 billion fine ― the largest the regulator had ever leveled against a bank.
From September:Wells Fargo cuts more jobs in the Des Moines metro in the 10th round of layoffs since April
Focus of home lending to shift to existing customers, Black and Hispanic communities
On Tuesday, Wells Fargo said it will now focus its mortgage business on serving existing customers and minority communities.
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Santos said in a statement. “As the largest bank lender to Black and Hispanic families for the last decade, we remain deeply committed to advancing racial equity in home ownership.”
Wells Fargo said it would invest an additional $100 million to advance racial equity in home ownership, including strategic partnerships with nonprofit organizations and community-focused engagements.
And the company said its $150 million Special Purpose Credit Program, announced in April to lower interest rates for non-white customers refinancing their loans, will now include lower costs for families in underserved communities purchasing a home.
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Wells Fargo said the announcement provides the company with “flexibility to more quickly address customer needs” in rapidly changing market conditions.
Wells Fargo stock closed at $42.02 on Tuesday, down from $42.67 at opening, or 0.047%.
Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at [email protected] or 515-284-8457.