When Wells Fargo [stock WFC][/stock] shut its doors to independent mortgage brokers last week, some brokers saw a bleaker future for their industry while others exhibited a mild case of denial.
Last week, the San Francisco bank said it will cease funding mortgages originated by independent brokers through its wholesale lending channel.
The same day, the bank announced a settlement with the Department of Justice that it will pay some borrowers $125 million to settle claims its wholesale brokers steered minority homebuyers into more expensive subprime mortgages. The DOJ said Wells’ allowed its loan officers and mortgage brokers to vary a loan’s interest rate and other fees from the price it set based on the borrower’s objective credit-related factors.
Don Frommeyer, head of the National Association of Mortgage Brokers talked to Wells Fargo after the announcement. “All they really did was shut off the broker conduit. They’re still going to do their correspondent stuff through their lenders. They just want it closed in somebody else’s name and not the brokers’,” Frommeyer says, downplaying Well’s big announcement.
“XYZ Company is a wholesale lender that does lots of business and if Wells closes a loan in XYZ's name they have some assets to go after, whereas a mortgage broker, if they ever have had to buy back four or five loans or even one loan, it might be tough,” Frommeyer says.
Frommeyer said things shouldn’t change much. “Instead of me as a mortgage broker selling directly to Wells Fargo, now I got to sell to, for example, Platinum Mortgage, who will sell to Wells Fargo.”
Still, the relationship DNA between brokers, who continue to fight a public relations battle, and the nation’s top mortgage originator by volume has changed — probably forever — into an indirect one with added overlays, a middle-man and less communication. And with any business that loses face-to-face contact, that transformation could be terminal.
“Mortgage brokers will be the ‘8-track tape players’ of the mortgage banking industry,” an unnamed source in the mortgage market recently said.
John Hudson, from San Antonio, Texas-based Premier Nationwide Lending, foretells a grim future. He sees possible devastation for the small business industry, specifically brokers, in that wholesalers might follow suit.
“It’s going to be a great shame if the thousands of owners of smaller businesses out there are forced to shut their company and work for a mortgage bank,” Hudson says. “No longer be an entrepreneur-business owner and forced to become an employee.”
Frommeyer says Wells is still committed to the mortgage broker, but "they no longer want to do business that closes in Wells Fargo’s name,” he says when asked about the conversation he had with Wells. “They want to do loans that close in someone else’s name so that there’s someone to go back to.”
Mortgages sold by independent brokers through Well’s wholesale channel represented just 5% of the bank’s home loan origination division — a minor loss considering the $131 billion in originations the division did in the second quarter.
Unfortunately for brokers, the phrase “minor” can’t be used to describe their loss of Wells Fargo.