Wells Fargo mortgage profits struggle amid increased competition

Bank faces overcapacity and rising competition

Wells Fargo is struggling with its mortgage fees as competition continues to increase, the bank said Thursday at an investor conference in New York.

Margins will continue to narrow not only for Wells Fargo, but also for other banks as competitors fight for the diminishing market share of originations, Wells Fargo CEO Tim Sloan said, according to an article by Hannah Levitt for Bloomberg.

“We’re going through a period of some level of overcapacity, and generally when you go through periods of overcapacity in an industry, pricing gets a little bit more competitive,” Sloan said.

Wells Fargo explained it has also seen more of a shift into the correspondent channel as competition rises.

“Not only have we seen the size of the overall market decline as interest rates have risen, but also we’ve seen tighter production margins in that business due to a shift in our origination mix from the retail channel to the correspondent channel and increased competitive pressures in both channels,” Wells Fargo Chief Financial Officer John Shrewsberry said.

But Wells Fargo isn’t the only company struggling amid the rising levels of competition.

At the recent Mortgage Bankers Association Secondary conference in New York City, MBA Chief Economist Mike Fratantoni said as mortgage refinances fall and purchase originations are unable to make up the difference, many lenders will see their profits go negative in the first quarter this year.

Previously, even as purchase originations dropped for the fall and winter months, refinance activity held originations at an even pace. Now, however, as interest rates rise and refinance activity levels hit their lowest point since before the housing boom, lenders are left to fight over the share of purchase originations.

And Movement Mortgage announced Thursday it will lay off 100 of its employees today across four locations as it faces lower originations and slower growth than it expected. This is the second time this year that Movement Mortgage has trimmed its staff. Back in February, Movement laid off approximately 75 employees.

Merger and acquisition activity has also picked up over the past few weeks. HousingWire Editor-in-Chief Jacob Gaffney recently revealed three new partnerships in mortgage lending that will help improve the digital mortgage.

Many lenders hope that utilizing digital mortgages will help cut back on costs as competition rises. Freddie Mac talks more about that in this podcast.

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