Wells Fargo Backs Out of the Mortgage Market – Now What?

real estate

| LAST UPDATE 01/15/2023

By Rose Fairchild
Wells Fargo Mortgage Market
Leonardo Munoz/VIEWpress via Getty Images

Wells Fargo is the country's third-largest mortgage lender. The American multinational financial service has spent the past 100+ years managing financial agreements for global customers. However, now, they are planning to take a step back from their services. Now, it is only a matter of time until we realize how this will impact their current and desired clients.

Forbes has announced that Wells Fargo is "stepping back from the mortgage market." While the global cooperation is not terminating its services for good, they are planning on devoting its operations to "existing customers, and those in minority communities." Competitors such as Bank of America and JPMorgan Chase should expect higher tensions, as now Wells Fargo's plans will ensure a higher focus on "investment banking and unsecured lending." Considering the company's external contenders cut their mortgage offerings after the 2009 financial crisis, Wells Fargo's transitions are expected to "shake things up." This is one of the company's most drastic changes since founded in 1852. They have strategized a plan that is steering away from their born objective, "to get in as many US homes as possible."

Wells Fargo CEO Charlie Scharf
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Since the 2008 financial disaster, there has been an influx of "new regulations." At the same time, they have learned valued corporate lessons and taken that information away to implement the business in more substantial investments as well as clients. For homeowners and soon-to-be homeowners, this transition is more than likely to affect them. Yet, this just comes to questioning how. To be precise, Wells Fargo has based its new strategy on "pure volume." Originally, they focused on captivating as many mortgage customers as possible across all markets. Now, CEO Charlie Scharf has demolished this theory and is focusing on "lending to their existing customers, as well as improving their service offer for minorities." According to the Fed's interest rate policy, "30-year fixed mortgages have gone from interest rates below 3% to hovering around 7%." This only means dream homes are further out of reach for many potential buyers. Unfortunately, this further results in layoffs at the company, where they will need to ultimately "downsize" in their mortgage operations department. Even so, this problem is likely only to worsen, due to the staggering pressure on the housing market since 2022, exiting out of Covid-19 surges. While inflation remains high, Fed chairman, Jerome Powell, has confirmed they won't back down until they hit a target rate of 2-3%.

As we see interest rates increasing for the first time since the 2008 disaster, high-growth companies as such are looking far more attractive. Simultaneously, they have learned from their previous failures, meaning the banking sector is now more "heavily regulated" than ever before. From an investor's point of view, it now comes down to carefully navigating the value of stock growth.

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