Like other banks before it, Wells Fargo pulls back from mortgage biz
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Wells Fargo announced that it’s pulling back on its mortgage-lending business. Though it’ll still do some, it won’t do nearly as much. This is a big change for a bank that used to be the top mortgage lender in the country.
Some of the reasons are specific to Wells Fargo and its own messy history. There’s also less demand for mortgages right now, with interest rates so high.
It’s also part of a bigger transformation in the mortgage market over the last decade or so — with big banks reducing their role and nonbank lenders stepping in.
It used to be that if you wanted a mortgage, you went to your bank.
“That all changed after the Great Recession, after the great financial crisis,” said Susan Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania.
The shift in the market, she said, has been driven largely by the growth of regulations on banks around mortgage lending.
“That, and the perceived risk of mortgages and the penalties imposed for mortgages that were not correctly originated, led banks to exit, and to exit in a stunningly transformative, large way,” Wachter said.
Now, a decade and a half after the Great Recession, nonbank lenders — companies like Rocket Mortgage, for instance — dominate the mortgage market.
“These nonbank lenders do not face the same regulatory burden,” said Tomasz Piskorski, a professor of real estate at Columbia Business School.
The same regulatory burden that big banks now face, that is. “So, in some sense, the regulation following Great Recession has given them the competitive edge,” Piskorski said.
More regulation is the biggest reason so many banks have pulled back from writing mortgages, he said. But it’s not the only one. They also lagged in technology.
“Banks were slow to adopt online, instantaneous fintech loan origination platforms,” he added.
Nonbank lenders were much quicker to offer easy access to mortgages online, and Piskorski said that helped them attract business.
“Customers really love them because they could get their loan much quicker than going through a traditional bank.”
In 2007, nonbank lenders wrote about a quarter of new mortgages. In 2021? It was nearly two-thirds.
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