In Crosshairs
The hard look at Wells Fargo’s mortgage empire follows changes throughout the bank’s leadership.
Charlie Scharf joined as chief executive officer almost three years ago to deal with a series of scandals that began with the revelation that the bank had opened millions of unauthorized accounts for customers. The abuses angered the public, thrust the company into Capitol Hill’s crosshairs and set off a pile of regulatory sanctions, including a Fed-imposed cap on the firm’s size. He embarked on a review of the bank’s operations, selling an asset manager, corporate-trust unit and student-lending book.
The question of whether to pare back mortgage-related operations arose repeatedly, according to insiders, but a number of key executives favored continuing the franchise's dominance of the market. The firm hauled in more than $57 billion in fees from mortgage banking over the past decade, filings show. They don’t break out profits after covering costs.
In recent months, the tide began turning. And in June, Scharf signaled Wells Fargo was taking a closer look at mortgages. Weeks later he noted that he wouldn’t be tethered to the firm’s past ambitions there.
“We’re not interested in being extraordinarily large in the mortgage business just for the sake of being in the mortgage business,” Scharf, 57, told analysts on a conference call last month. “We are in the home-lending business because we think home lending is an important product for us to talk to our customers about, and that will ultimately dictate the appropriate size of it.”
That week, Wells Fargo announced that its head of consumer lending, Mike Weinbach, would be replaced by Kleber Santos, the lender’s head of diverse segments, representation and inclusion. Talks about strategic changes have since accelerated.
‘Want to Be No. 1’
It’s quite a turnaround from just a few years ago when Wells Fargo was defending its mortgage crown from the advance of online lenders led by Rocket Mortgage.
“We want to be No. 1 regardless of who we’re competing with, because that’s the position we hold and we’re enthusiastic about it,” John Shrewsberry, the bank’s then-finance chief, said in early 2018.
Since then, Wells Fargo’s mortgage unit has repeatedly featured in scandals, with the bank vowing to do better. That year, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau fined the company $1 billion for a variety of abuses including in mortgages. Among them, the firm overcharged some customers for locking in low interest rates.
Wells Fargo also disclosed that year that a software glitch caused the bank to deny loan modifications to some struggling buyers who would have qualified, leading it to foreclose on hundreds of them.
Then last year, the OCC punished the company again, citing a lack of progress in improving its systems for avoiding foreclosures and helping affected borrowers. The regulator ordered the bank to refrain from acquiring certain residential servicing rights from other firms and to ensure that certain borrowers aren’t transferred out of its servicing portfolio until it makes victims whole.