(Bloomberg) — Wells Fargo & Co., announcing a “new strategic direction” for a mortgage empire that was once the largest in US banking, said it will stop funding home loans arranged by outsiders and shrink the portfolio of debts that it services.
(Bloomberg) — Wells Fargo & Co., announcing a “new strategic direction” for a mortgage empire that was once the largest in US banking, said it will stop funding home loans arranged by outsiders and shrink the portfolio of debts that it services.
The retreat from so-called correspondent lending and reduction in servicing caps years of efforts to clean up a business that entangled Wells Fargo in regulatory probes and lawsuits. Bloomberg News broke the news on company’s intent to pull back from such businesses in August.
Read more: Wells Fargo to shrink biggest US mortgage empire after scandals
While dialing back those operations, the firm said Tuesday it will expand a program launched last year to help minority home owners. That will include investing an additional $100 million to advance racial equity in homeownership and “ongoing investments in this area in the years to follow,” the San Francisco-based lender said.
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Kleber Santos, the firm’s head of consumer lending, said in a statement Tuesday. “As the largest bank lender to Black and Hispanic families for the last decade, we remain deeply committed to advancing racial equity in homeownership.”
The new racial-equity initiative replaces a target Wells Fargo set more than a half-decade ago for supporting minority homeownership, after it became clear that the bank and some of its rivals were failing to meet such goals.
Read more: Big banks fall short on boosting loans to Black homebuyers
After the 2008 financial crisis, most giant US banks concluded that mortgages were better in moderation. Wells Fargo was the exception, riding a surge in refinancings to record profits and capturing more than 33% of market share.
Then things shifted. Online lenders swelled to fill the void left by the banks in the aftermath of the crisis. Inside Wells Fargo, a series of scandals came to light, landing it in a series of political crosshairs and spurring years of costly regulatory sanctions.
The debate over the future of the bank’s mortgage business heated up last year under Chief Executive Officer Charlie Scharf, who took over in 2019.
“We’re not interested in being extraordinarily large in the mortgage business just for the sake of being in the mortgage business,” Scharf said on an analyst call last year.
(Updates with additional details on Wells Fargo’s mortgage business beginning in fifth paragraph.)
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