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Key takeaways

  • Wells Fargo, the country’s third largest mortgage lender, is stepping back from the mortgage market.
  • While not exiting it entirely, they’ll be focusing on only providing mortgages to their existing customers, and those in minority communities.
  • It’s a major shake up which will see Wells Fargo take the lead from competitors like Bank of America and JPMorgan Chase, with a focus on investment banking and unsecured lending like credit cards.

One of the three biggest mortgage lenders (and once holding the number one spot) in the United States, Wells Fargo, is stepping back from the mortgage market. They’re not getting out of it entirely, but they’re making drastic changes to their strategy, in one of the biggest shake ups we’ve seen in years.

Wells Fargo’s objective used to be to get in (and on the house deed for) as many US homes as possible. Now they’re looking to bring their main business more closely in line with their biggest competitors, like Bank of America and JPMorgan Chase, who cut their mortgage offerings after the 2008 financial crisis.

It’s the latest change in the shifting fortunes of Wall Street, which has continued to go through disruption and change post-2008. This has been partly as a result of the new regulations and corporate lessons learned from the crash, but also the pressure from disruptors in the sector.

For homeowners and would-be-homeowners, a major exit from the market like this is sure to have consequences. So what are they and how is this likely to impact the mortgage industry?

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What changes are Wells Fargo making?

Wells Fargo’s strategy used to be focused on pure volume. Getting as many mortgage customers as they possibly could, across all segments of the market. Now, CEO Charlie Scharf is going to be focusing on lending to their existing customers, as well as improving their service offer for minorities.

A major driver for the change has been the Fed’s interest rate policy. While it’s seen the net interest margin increase substantially, the demand for mortgages has fallen through the floor. 30 year fixed mortgages have gone from interest rates below 3% to hovering around 7%.

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That means the average monthly mortgage has risen by hundreds of dollars a month, putting dream homes out of the reach for many potential buyers.

 

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