Wells Fargo is downsizing its mortgage business a multitrillion-dollar market after the Federal Reserve’s outsized interest-rate hikes hammered the housing market by helping dampen demand.
Wells Fargo is downsizing its mortgage business a multitrillion-dollar market after the Federal Reserve’s outsized interest-rate hikes hammered the housing market by helping dampen demand.
Wells Frago Is Stepping Down
In the United States, Wells Fargo was once the number one player in mortgages but due to some legal violations, they are stepping back from the mortgage market. They’re not getting out of it entirely, but they’re making drastic changes to their strategy, in one of the biggest shake-ups we’ve seen in years.
In June, Wells Fargo CEO Charlie Scharf signaled the bank was reconsidering the size of its mortgage lending business, as rising interest rates led to falling mortgage sales. Furthermore, higher mortgage rates are expected to drag significantly on the US housing market, putting off potential buyers as repayment costs increase. Some economists have projected that house prices could drop 20% in 2023 as demand stalls.
What Changes Wells Fargo Making?
A major component in the transformation has been the Fed’s interest rate policy. While it’s seen the net interest margin hike substantially, the demand for mortgages has dripped through the floor and 30-year fixed mortgages have gone from interest rates below 3% to hovering around 7%.
That means the average monthly mortgage has risen by hundreds of dollars a month, putting dream homes out of the reach of many potential buyers. Wells Fargo is concerned about the longer-term ramifications of this change in interest rate policy.
Unfortunately for employees of the bank, this means layoffs. However, there is no official numbers have been released, by the mortgage operations department, which will undergo severe reduction, according to senior executives.
