On Tuesday, Wells Fargo shared major changes happening to its business in 2023.
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The company announced “strategic plans” to focus on serving bank customers and minority homebuyers. It also intends to descale its mortgage business — formerly one of the top lenders in the country.
Additionally, the company will exit the correspondent business, which purchases loans from third-party lenders, and reduce the size of its mortgage-servicing portfolio.
“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 the press release.
Executives have acknowledged that the changes will result in a new round of layoffs, CNBC reported, but declined to estimate the number of employees who will be affected.
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With the new focus and direction, Wells Fargo’s business model will more closely resemble that of rival banks such as JPMorgan Chase and Bank of America, both of which stepped back from the mortgage business after the Great Recession of 2008.
The de-escalation of Wells Fargo as a major lender might have implications for the mortgage market in the U.S. When major lenders exit the business, non-banks step in to meet demand. However, these “nonplayers” are far less regulated than banks, CNBC reported.
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Currently, Wells Fargo is the third-largest mortgage lender behind Rocket Mortgage and United Wholesale Mortgage, both of which are non-bank players.
One of the biggest initiatives in Wells Fargo’s new focus is supporting minority homebuyers. The bank will invest $100 million in advancing racial equity in homeownership and stated it intends to continue to invest in this sector for years to come.
“As the largest bank lender to Black and Hispanic families for the last decade, we remain deeply committed to advancing racial equity in homeownership,” Santos said in the release.
Additionally, Kristy Fercho, head of home lending and head of diverse segments, representation and inclusion at Wells Fargo, stated that the company will hire additional mortgage consultants in communities of color.
The initiative comes months after the bank was exposed for falsifying diversity efforts. A former employee claimed Wells Fargo had a practice of holding interviews for positions that were either already filled or didn’t exist. The interviews were a vehicle for recording diversity efforts on paper rather than carrying them out in reality. Joe Bruno, the former Wells Fargo employee who came forward with the claims, had been fired by the bank in August 2021.
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“To the extent that individual employees are engaging in the behavior as described, we do not tolerate it,” a Wells Fargo spokesperson told The New York Times at the time.
