Wells Fargo’s mortgage dominance worries regulators and investors


Wells Fargo & Co. has become so dominant in the mortgage business that major investors and federal regulators are worried that a financial hiccup at the giant bank could roil the already beleaguered real estate market.

Wells originates 34% of all home loans — more than the combined total of the next seven biggest mortgage lenders. That’s why regulators are closely watching the San Francisco bank, Paul J. Miller, a former Federal Reserve bank examiner, said Thursday.

“The problem is there’s a lot of systemic risk when one company has that much of the market,” said Miller, an analyst specializing in mortgages at FBR Capital Markets & Co.


Wells Fargo’s balance sheet is viewed by analysts as being among the strongest of the nation’s banks, and a major distress in its mortgage business is seen as unlikely. “But if something did happen, the government would have to step in and backstop them,” Miller said. He said major mortgage investors and regulators have both expressed private concerns.

This is a crucial time for the housing markets, which Christopher Thornberg of Beacon Economics calls “the most affordable in 40 years” because prices and interest rates have fallen so low. Mortgage giant Freddie Mac said Thursday that the typical rate for a 30-year fixed loan was 3.84% — the lowest ever recorded.

Demand for refinancing is extraordinarily high, with government programs making it easier for certain deeply underwater borrowers to get new loans if they have diligently paid the old ones.

Experts said Wells’ ascendance has come not because of its own aggressive lending but becauseBank of America Corp., once the largest home lender, andCitigroup Inc., another major player, have retreated from the current hot market to deal with other problems.

“It’s unbelievable how few loans Citi and Bank of America now make,” said Scott Simon, head of mortgage securities for the giant bond trader Pimco in Newport Beach. “The biggest problem now is that many good borrowers can’t get loans.”

Wells officials themselves have expressed some surprise at how dominant the bank has become.

“Two years ago I don’t think we would have imagined that our market share would be where it would be today,” Wells Chief Financial Officer Timothy Sloan said at the RBC Financial Services Conference in Boston on Tuesday.

Asked about Miller’s concerns Thursday, a Wells spokesman would say only: “We always work closely with our regulators.”

A spokesman for theU.S. Office of the Comptroller of the Currency, which regulates national banks, didn’t respond to a request for comment, and a Federal Reserve spokeswoman declined to comment.

Wells Fargo made $130.4 billion of the $385 billion of mortgages originated in the first quarter, a 51.8% increase over its year-earlier production, according to trade publication Inside Mortgage Finance.

JPMorgan Chase & Co. was a distant second with $40.9 billion, up 5.5% from a year earlier. At No. 3 was US Bancorp, whose $20.1 billion in new home loans was up 65.3%

No. 4 Bank of America’s volume dropped 72.6% to $16 billion in new loans, while Citigroup was in fifth place with $15.7 billion in new mortgages, up 2.7%.