Wells Fargo, long one of the biggest players in the mortgage business, is taking a big step back.
The scandal-ridden bank announced a significant shift on Tuesday to focus its mortgage business on serving bank customers and minority homebuyers instead of acquiring new customers.
Wells Fargo said it will also exit its correspondent business, which buys loans made by other lenders, and reduce the size of its mortgage servicing portfolio.
The retreat will likely cause Wells Fargo to lay off at least some employees, though the bank did not announce any specifics. A spokesperson declined to comment on potential layoffs.
“Mortgage is an important relationship product, and our goal is to continue to be the primary lender to Wells Fargo bank customers as well as minority homebuyers,” Kleber Santos, Wells Fargo’s head of consumer lending, said in a statement.
The move comes as Wells Fargo continues to be in trouble with regulators. Last month, the Consumer Financial Protection Bureau ordered Wells Fargo to pay a record fine of $1.7 billion for “widespread mismanagement” over multiple years that harmed 16 million customer accounts.
In an interview with CNBC, Santos said the bank’s legal problems helped cause the decision to step back from the mortgage market along with the spike in interest rates.
“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” Santos told CNBC. “As part of that review, we determined that our home lending business was too large, both in terms of overall size and its scope.”
Ted Rossman, senior industry analyst at Bankrate.com, said Wells Fargo has “been dogged by various regulatory scandals, and it’s also a tough time for the mortgage market right now.”
Rossman said the bank’s change “is reminiscent of what some other big banks like Bank of America and Chase went through after the financial crisis. They’ve gotten more into trading and credit cards and are focusing less on the mortgage business, which now counts nonbank fintechs such as Rocket Mortgage and loanDepot among its largest players.”
“The regulatory environment, the economics and the risk/reward calculus of being in the mortgage market have changed significantly in recent years,” Rossman said.
In late 2017, Quicken Loans toppled Wells Fargo as America’s largest mortgage lender.