Wells Fargo Bank said it plans to streamline its mortgage business to focus on its existing customers and minority communities.
The bank’s recent announcement came less than a month after it faced a record $3.7 billion fine by the Consumer Financial Protection Bureau (CFPB) that was a result of mismanagement, discrimination and fraud going back several years. The bank has also been accused of mortgage discrimination in the past.
But industry observers said that many of the bank’s competitors had begun reducing their reliance on the mortgage business after the financial crisis of 2008, while Wells Fargo continued to grow its mortgage business.
Also, in the past year mortgage rates have more than doubled, slowing down what had been a red hot market, due to historically low interest rates, prompting companies like J.P. Morgan Chase and Wells Fargo to reduce their mortgage staffs. In February 2022, Santander Bank exited the mortgage business.
According to Rohit Chopra, director of the CFPB, most mortgages are now generated by mortgage companies instead of banks.
“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 Kleber Santos, Wells Fargo CEO of consumer lending. “As the largest bank lender to Black and Hispanic families for the last decade, we remain deeply committed to advancing racial equity in homeownership.”
This decision by Wells Fargo is designed to narrow the focus of its home lending business reduce the size of the business and lower its risk, Santos said.
“With this new initiative, it (Wells Fargo) is trying to make things right. Whether it will happen or not is something we will learn in the future,” said Andrew Milz, a lawyer in Montgomery County, who specializes in consumer financial issues. “I certainly hope that opportunity is given to everyone on an equal basis, so we will see if Wells Fargo can follow through with that.”
As part of this strategic plan,Wells Fargo plans to take several steps, including broadening its existing $150 million Special Purpose Credit Program, (SPCP) to provide purchase loans; investing an additional $100 million to advance racial equity in homeownership, which will include partnerships with non-profits and other community housing groups. In addition, Wells Fargo plans to deploy additional mortgage consultants in local minority communities.
For example, the SPCP program was announced in April 2022, to initially lower the cost of refinancing in underserved communities, but it will now be expanded to help Black and brown families purchase homes.
“We 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,” said Kristy Fercho, head of home lending and head of diverse segments, representation and inclusion at Wells Fargo. “We also will hire additional mortgage consultants in communities of color.”
In December, Federal bank regulators ordered Well Fargo Bank to pay $3.7 billion for illegal widespread mismanagement of auto loans, deposit accounts and mortgages that affected more than 16 million consumer accounts.
The action was part of a consent order with the bank.
According to the Consumer Financial Protection Bureau, Wells Fargo illegally repossessed vehicles, incorrectly assessed fees and interest and charged surprise overdraft fees. This conduct caused billions of dollars in financial harm for thousands of customers resulting in the loss of homes and vehicles, some cases.
For example, CFPB has ordered Wells Fargo to pay more than $2 billion to consumers in refunds and a $1.7 billion civil penalty for legal violations across several of the bank’s product lines.
At the time, Wells Fargo said in statement that it was working with the CFPB to resolve multiple matters, many of which have been outstanding for several years.
“The operating losses incurred in the fourth quarter reflect an important milestone in our work to resolve historical issues,” said Wells Fargo Chief Executive Officer Charlie Scharf, in a earnings statement. “Our broad-reaching agreement with the CFPB in December helps resolve multiple matters, the majority of which have been outstanding for several years. Over the past three years we have made significant changes to address the matters referenced in the settlement and many of the required actions were already substantially complete prior to this announcement. While our risk and regulatory work hasn’t always followed a straight line and we have more to do, we have made significant progress, and are moving forward.”