Wells Fargo is cutting back on mortgages, and will instead focus on lending to minorities. The financial services company has plans to exit the “Correspondent business with plans to reduce the size of its Servicing portfolio.” The bank will shift the focus of its Home Lending business to “individuals and families in minority communities.”
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” Kleber Santos, CEO of Consumer Lending said in a press release.
The bank also plans to invest $100 million more to “advance racial equity in home ownership” and deploy additional Home Mortgage Consultants in local minority communities.
“We will continue to expand our programs to reach more customers in underserved communities by leveraging our strong partnerships with the National Urban League, Unidos US and other non-profit organizations,” Kristy Fercho, head of Home Lending and head of Diverse Segments, Representation and Inclusion at Wells Fargo, added. “We also will hire additional mortgage consultants in communities of color.”
$150 million will also be earmarked to serve minority communities looking to refinance or buy a home, “helping more black and hispanic families achieve home ownership.”
The bank stated that it had reached its previous goal of providing mortgages to individuals and families, but would now focus on lending to minority communities.
According to CNBC, Wells Fargo’s decision is part of a larger trend in which banks are leaving the home lending business in order to focus on other aspects of their business.
Wells Fargo’s biggest competitors, such as JP Morgan Chase, are becoming a major player in the mortgage market while Wells Fargo is still trying to recover from the 2008 financial crisis.
CEO Charlie Scharf said that the multi-trillion dollar mortgage market is challenging and that higher interest rates could put pressure on the portfolio. He noted that this move will help Wells Fargo manage the impact of this pressure on their service offer.
Wells Fargo will instead focus their home lending business to include purchase loans, lending commitments and credit programs that are designed to help minorities achieve home ownership.
They will also put much greater focus on their investment banking business and place unsecured lending such as personal loans, credit cards and business programs in the back-burner.
This announcement comes at a time when companies like JPMorgan Chase have announced they are increasing their commitment to advance racial equity by putting more emphasis on minority homeownership.
Wells Fargo’s move is part of its effort to reduce costs by streamlining its service offerings, while also helping customers who have been underserved in the past, such as Hispanic families.
The bank is cutting back on its home loan offerings to white borrowers, and instead offering more mortgages to minorities.
According to a government investigation, Wells Fargo was found to have charged higher fees and rates on 34,000 instances when white applicants with similar credit profiles applied for a loan purchase.
The investigation also found that the bank was more likely to deny home loan applications from African Americans than from other groups, even when they had the highest income level. As part of its effort to resolve this issue, Wells Fargo has agreed to pay $175 million in fines and provide documents about its mortgage rates and policies in Columbia County in South Carolina.
The bank has also agreed to cut home loans to whites and will focus on lending to minorities.
Even minority borrowers with subprime home purchase loans have faced higher mortgage market interest rate gaps than white borrowers.
These gaps can include lender credits, African-Americans being charged higher interest rates than whites of the same income level, and find little evidence that the ratio of points gaps between high interest rates and average interest rates for ethnic groups is 40 to 60 bps.
An identical point schedule with the same degree of risk does not mean the borrower will get the same interest rate; Wells Fargo had different rate schedules for different credit classes for mortgages.