SF Chronicle: Wells Fargo Mortgage Growth Raises Red Flags

Compared with just 10% of the mortgage market in 2004, Wells Fargo now makes roughly one out of every three new mortgages, writes a report in the San Francisco Chronicle. And the growth in market share, the article says, is raising some red flags.   

The concentration in a single market is one thing, but because it is among banking industry participants, there are even more concerns, the article asserts. 

The San Francisco Chronicle Reports

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Concentration in any market is not good because it can lead to fewer choices and higher prices. But it’s of special concern in the banking industry because of its key role in the economy.

“One reason we can’t deal with Fannie and Freddie (which purchase or securitize 70 percent of new mortgages made by others) is because we are too dependent on them. We can’t shut them down without having a huge impact on the economy,” says Guy Cecala, publisher of Inside Mortgage Finance. “If you have a lender who is making 1 out of 3 mortgages, it’s the same problem. If they have an issue, how will the Fed, policymakers, the FDIC deal with them?”

Wells Fargo says it has gotten big because it serves clients well. “Our commitment to the business is long-standing,” says Wells Fargo spokeswoman Vickee Adams. “We have been able to deliver the kind of customer service that drives customers back to us.”

Others say it’s because Wells has been willing to lend while competitors have disappeared, scaled back or grown more slowly. “There have been exits and shrinkage by others, which has created a vacuum for Wells,” says banking analyst Bert Ely.

…If regulators and politicians are worried about growing concentration in the market, perhaps they should worry less about Wells Fargo and more about why other banks are not lending.

It’s not because the business is unprofitable. The difference between the yield on 10-year Treasurys and 30-year mortgages is near record highs. “Wide spreads are a powerful inducement for a lender to want to make loans,” says Keith Gumbinger, a vice president with HSH Associates.

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Written by Elizabeth Ecker

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