Wells Fargo announces lower home loans and new aid for minority borrowers


Wells Fargo addressed two troubled aspects of its business on Thursday, signaling a sharp drop in origination while announcing plans for a special purpose credit program to support minority borrowers following multiple accusations of racial discrimination.

The company’s 33% drop in origination volume was “one of the biggest quarterly declines I can remember,” CEO Charles Scharf said.

Wells reported a 21% year-over-year drop in first-quarter net profit. Management income gains, which mortgage bankers often use as a hedge against declining new loan production when rates rise, have failed to make up the difference.

Net origination income fell to $538 million from more than $1.38 billion as profit margins and lending volume fell. Management revenue in the first quarter rose to $116 million annually, from a net loss of $123 million a year earlier. On a net basis, mortgage banking income fell to $654 million in the first quarter from nearly $1.26 billion a year earlier.

But service can be a volatile asset, and banks don’t necessarily depend on that revenue to offset origination revenue when rates rise, because they’re active in a wider range of business sectors, as a noted Scharf in response to questions from analysts on the earnings call.

“I would view the reduction in mortgage bank revenue as not being offset by the [mortgage servicing rights]but being compensated by the rest of the advantages that we will obtain as a company [in net interest income],” he said.

Still, analysts will quickly assess how unique the gap between Wells’ service and origination revenue is. Stronger servicing performance could be a differentiator for mortgage transaction revenue in the current rate cycle, especially for non-banks which are typically monoline institutions.

Overall, the bank’s net profit of $3.67 billion or $0.88 per share beat analysts’ consensus estimates which were closer to $0.80. However, its revenue fell short of expectations at $17.59 billion from $17.8 billion. The release of loan loss reserves set aside for pandemic contingencies that never materialized were among the offsets for weak mortgage lending. Leaders said they were also optimistic that recent layoffs in industryaimed at eliminating excess capacity in mortgage origination operations, will help restore margins.

In other news Thursday, Wells Fargo announced it was committing $210 million to help minority owners through a new special purpose credit program.

Part of the funding, $150 million, will be used to lower mortgage rates and reduce refinancing costs. The lender said it was also spending $60 million through its foundation on a grant program supporting up to 40,000 homeowners of color in eight markets with significant ownership gaps between white and minority borrowers.

The bank said the movements were unrelated to New York City Executive Order last week, which banned public agencies from opening deposit accounts with the bank because it was targeted by several allegations of discriminationaccording to Wells.

The city’s action came in response to a March Bloomberg report alleging, among other discrepancies, that Wells Fargo rejected more than half of its black applicants seeking to refinance in 2020 while approving 71% of its white applicants. In a statement late Thursday, the New York City Comptroller’s Office said it was pleased to see the program launch from Wells Fargo, but the initiative is not enough to address its underlying issues. .

“Wells Fargo should begin a public dialogue and provide clear steps it is prepared to take to directly address its disparate rejection rate before our office considers reversing its stance on opening new accounts. “said a spokesperson.

Those findings are cited in two amended federal class action lawsuits against the bank by black owners who accuse Wells Fargo of “modern redlining.” The plaintiffs, who a Hollywood movie executive and wife of an NCAA Division I football coach joined the ranks this week, allege the bank delayed and refused refinances despite their highly qualified status and also approved refinance rates for them higher than those of white borrowers. High-profile attorney Ben Crump, who represented the families of police brutality victims George Floyd and Breonna Taylor, also joined the lawsuit this week.

Another class action lawsuit also alleged that the bank’s automated underwriting perpetuated discriminatory lending decisions and that the problem was exacerbated by pandemic-related layoffs and overworked staff. Confidential informants, according to a complaint, said they referred rejected black landlord applicants to competing institutions that would quickly approve their applications.

Wells Fargo, in a statement Thursday evening, said its special purpose credit program was not a response to lawsuits, and pointed out that it was the largest bank lender for mortgages to black families in 2020. .

“Any suggestion that our home lending practices are discriminatory is without merit,” a spokesperson said.

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