Wells Fargo & Co., the largest U.S. home lender, said it’s cutting 300 jobs after regulatory changes caused the bank to withdraw from eight mortgage joint ventures.
New state and federal oversight “have increased the complexity and difficulty of operating mortgage joint ventures,” the San Francisco-based company said today in a statement. That made the business model unworkable, Franklin Codel, head of mortgage production at Wells Fargo, said in an interview. The arrangement accounted for 3 percent of originations in the second quarter, according to the bank.
The 2010 Dodd-Frank Act put the joint ventures under state rules, ending the federal pre-emption that made the process more uniform, Codel said. “We were exposed then to 50 states’ unique regulations and requirements which ranged from everything from licensing to documentation,” he said.
Wells Fargo is exiting as higher interest rates crimp mortgage borrowing. The average fixed rate on a 30-year home loan rose almost one percentage point to 4.31 percent in the three months ended July 25, and Wells Fargo has forecast the business will taper off the rest of this year.
The bank once operated more than 100 joint ventures run as separate legal entities with their own sales forces and the freedom to sell loans to Wells Fargo or other lenders, Codel said. With the change, the bank’s partners may finance homeowners directly, sign agreements to make Wells Fargo a preferred lender, or leave the market, he said.
The withdrawal will be completed over the next 12 to 18 months, Wells Fargo said, adding that the decision doesn’t affect its own retail mortgage lending and relationships with outside correspondent lenders.
Wells Fargo slipped 1.5 percent to $43.65 in New York trading, trimming its advance to 28 percent this year. The bank is the biggest employer among U.S. lenders with about 274,300 on staff at midyear. Wells Fargo said it will try to find other jobs for those affected. The firm earned record profit in the second quarter and ranked as the world’s most valuable bank.
The company originated $112 billion in home loans in the second quarter and accounted for almost 1 in 3 U.S. home loans last year, according to Inside Mortgage Finance, a trade publication.
Earlier today, HomeServices of America Inc., the real estate brokerage unit of Warren Buffett’s Berkshire Hathaway Inc., agreed to take over Wells Fargo’s stake in their joint venture that was the largest of the eight. Berkshire, based in Omaha, Nebraska, is Wells Fargo’s largest shareholder.
The joint venture, known as HomeServices Lending LLC, has annual production of between $3.5 billion and $4 billion, President Todd Johnson said in an interview. Johnson said HomeServices of America decided to take over the entire venture so that it could provide “one-stop shopping” for its customers. The company is still weighing what it will do with mortgage risk once Wells Fargo exits the venture, he said.
“Getting a mortgage today is more challenging than it was years ago, and given the level of financial reform and change, we know that it’s going to be a robust process going forward,” Johnson said. “We believe that we do it better in all of our markets.”