July 12 (Bloomberg) — Wells Fargo & Co., the largest U.S. mortgage lender, has stopped funding loans originated and sold by independent mortgage brokers [such as The Precision Companies] after settling a federal fair-lending investigation.
After Friday, July 13th Wells stopped accepting new applications for loans originated by independent mortgage brokers through its wholesale channel. The lender did, however, say it will still process and close existing applications.
Wells Fargo agreed to pay $125 million to settle U.S. claims that it discriminated against minority borrowers in making residential loans. The decision to exit wholesale was made by Wells Fargo “on its own volition,” the bank said in a statement about that accord.
The company made $7.4 billion of mortgages through brokers in the first quarter, the most of any lender and 21 percent of the industry-wide total, according to Inside Mortgage Finance, a trade publication. The loans made up about 5 percent of the company’s total, according to the statement.
Of note here is that safeguards have already been put in place at the regulatory levels to prevent the sort of extortion that is complained of. Further, all underwriting decisions for the wholesale channel were/are made by internal staff at Wells Fargo. An argument, could be made then, that Wells has decided to stop its Wholesale line of business with the hopes of directing a large portion of the $7.4 billion mortgages generated quarterly to its more profitable retail arm.
Indeed, with the loss of the last major Institutional funding source in the wholesale world, Wells Fargo has less of a reason to remain competitive, as it has effectively removed its biggest competitor: itself.
To the individual broker, however, it is not the end of the world. Since 2010, the emergence of small lenders has created a competitive marketplace; and with the volatility in the securities market, it is likely the sources for funding purchase money and mortgage refinance loans will continue to grow for the foreseeable future.
The Precision Companies