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Wells Fargo has no intention of abandoning the corresponding lending sector, company executives say.
Reacting to reports that suggest the nation's third-largest bank may leave the sector, a Wells Fargo executive sent an email to clients last week stating that “Correspondent has been an essential part of Wells Fargo Home Lending’s success and continues to play a key role as we adapt to a changing industry.”
The email, written by Wells Fargo Senior Vice President Michael Ringwood, said, “Wells Fargo Funding has been a mainstay and a leader in the correspondent space for more than 30 years.
“During that time," the email continues, "we’ve navigated multiple market challenges — the Great Recession, the (COVID-19) pandemic — by providing liquidity in the industry and serving the needs of our clients. I want to assure you that we remain committed to working with (and) supporting you, as we have for decades.”
Ringwood went on to say that Wells Fargo is "continuously seeking new business opportunities that best position us to serve our customers, including our correspondent clients. Of course, like companies across the industry today, we are also evaluating our strategy in a dramatically smaller (mortgage) originations market.”
The email was shared with American Business Media, publisher of National Mortgage Professional magazine and NationalMortgageProfessional.com, by a company in the correspondent lending channel.
The idea that Wells Fargo would abandon correspondent lending, first reported by Bloomberg, said Wells Fargo executives “plan to shrink its vast mortgage empire, which once churned out one of every three home loans in the U.S. and for a time made the bank the most valuable in the nation."
The Bloomberg report continued, “Wells Fargo’s leadership is preparing a retreat that will probably start with the bank’s ties to outside mortgage firms that generated roughly a third of its $205 billion in new home loans last year, according to people with knowledge of the decision.”
Bloomberg reported that Wells Fargo executives said the bank’s “retrenching will almost certainly include paring, or potentially even halting, so-called correspondent mortgage lending, in which Wells Fargo provides funding for loan arranged by outsiders.”
Approached by NMP about the potential pullout from correspondent lending, Wells Fargo spokesman Tom Goyda said in an email that, “I can’t address the specific question about correspondent. I can say that Wells Fargo is committed to supporting our customers and communities through our Home Lending Business.
“Like others in the industry," he added, "we’re evaluating the size of our mortgage business to adapt to a dramatically smaller originations market. We’re also continuing to look across the company to prioritize and best position us to serve our customers broadly."
In July, Wells Fargo reported second-quarter net income of $3.12 billion, or 74 cents per diluted share, down 15% from the first quarter and down 48% from the same quarter last year. At the time, the bank said home-lending revenue declined 53% from a year earlier and 35% from the first quarter, driven by lower mortgage originations and compressed margins.
Chief Financial Officer Mike Santomassimo told analysts during the July earnings webcast that the mortgage market is expected to remain challenging in the near future, and that reductions in force may continue to be necessary.
“It's possible that we will have a further decline in mortgage banking revenue in the third quarter,” he said. “We are making adjustments to reduce expenses in response to lower origination volumes, and we expect these adjustments will continue over the next couple of quarters.”
The bank has eliminated 197 jobs at its home-lending division in Iowa so far this year, and has filed a Worker Adjustment and Retraining Notification (WARN) Act notice in that state announcing its intent to lay off another 125 employees there by the end of this month.