Wells Fargo's Mortgage Strength is U.S. Weakness

Agenda-Setting Financial Insight.
July 12 2012 1:54 PM

Wells Fargo's Mortgage Strength is U.S. Weakness

119372758
Wells Fargo became the nation’s top mortgage servicer in the fourth quarter last year, edging out Bank of America.

Photo by Justin Sullivan/Getty Images

Wells Fargo’s mortgage strength is America’s weakness. The bank accounts for a third of the country’s new home loans and is the largest servicer, too. That’s great for Wells’ bottom line. But such a dominant market share, if sustained, could be bad news for consumers and taxpayers. Rivals need to up their game. 

The San Francisco-based bank’s mortgage business is three times the size of its nearest competitor. And Bank of America, once a behemoth after buying Countrywide in 2008, now accounts for just 4 percent of the market, according to Credit Suisse, after deciding to stop buying mortgages from other lenders. 

Wells also became the nation’s top mortgage servicer in the fourth quarter last year, edging out BofA. Servicing is the paper-pushing operation that keeps monthly payments flowing from borrower to banks and investors in mortgage-backed securities. 

Servicing may not be sexy, but it’s an essential cog in the U.S. home-lending machine. Wells currently services $1.8 trillion-worth of home loans. That’s difficult to replicate or compete with. Three banks account for 46 percent of the market and BofA and JPMorgan are shrinking their business. If Wells were to fail, it would take months or longer for others to ramp up to fill the vacuum, potentially causing havoc. 

Being such a large lender puts Wells in a position to negotiate better deals with government-run agencies like Fannie Mae and Freddie Mac that back most home loans. That’s potentially bad for taxpayers since lower guarantee fees would mean lower returns for the risk being taken and fewer funds set aside for soured mortgages. Wells could also negotiate lower prices for loans from smaller banks that aren’t equipped to service the mortgages themselves. That’s bad for consumers. 

The good news is smaller lenders like U.S. Bancorp, Flagstar Bank and Provident Funding are stepping up to the plate. Even American Express is getting into the business. But their combined market share is a third of Wells’. Bigger muscle may be needed to balance the playing field. JPMorgan, for one, has the balance-sheet capacity to increase its footprint in home lending. The last thing the United States needs is another too-big-to-fail problem in mortgages.

Agnes T. Crane is a Reuters Breakingviews columnist, based in New York, where she covers capital markets and Latin America. She joined from Dow Jones Newswires, where she was an award-winning journalist who led a team of reporters covering the credit crisis.

TODAY IN SLATE

The World

The Budget Disaster that Sabotaged the WHO’s Response to Ebola

How Movies Like Contagion and Outbreak Distort Our Response to Real Epidemics

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

Everything You Should Know About Today’s Eclipse

An Unscientific Ranking of Really, Really Old German Beers

Education

Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.

Culturebox

The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Can Democratic Sen. Mary Landrieu Pull Off One More Louisiana Miracle?

  News & Politics
Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
  Business
Moneybox
Oct. 23 2014 11:51 AM It Seems No One Is Rich or Happy: I Looked
  Life
The Vault
Oct. 23 2014 12:02 PM Delightfully Awkward Studio Action Shots of Players, Used on Early Baseball Cards
  Double X
The XX Factor
Oct. 23 2014 11:33 AM Watch Little Princesses Curse for the Feminist Cause
  Slate Plus
Working
Oct. 23 2014 11:28 AM Slate’s Working Podcast: Episode 2 Transcript Read what David Plotz asked Dr. Meri Kolbrener about her workday.
  Arts
Brow Beat
Oct. 23 2014 12:01 PM Who Is Constantine, and Should You Watch His New Show?
  Technology
Technology
Oct. 23 2014 11:45 AM The United States of Reddit  How social media is redrawing our borders. 
  Health & Science
Bad Astronomy
Oct. 23 2014 7:30 AM Our Solar System and Galaxy … Seen by an Astronaut
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.