Wells Fargo’s recent decision to get out of wholesale lending and reduce its involvement in Realtor joint ventures is a troubling indication of a movement to small-tent thinking that may not be great for the mortgage industry.
A big-tent approach employs more people and gives potential homeowners a wider opportunity to get mortgage finance.
Wells cited its recent $175 million fair lending settlement that involved Wells’ wholesale channel and its lack of control over third-party originators that are not its employees as reasons for the move.
Wells, the country’s largest wholesaler (it table funded nearly $8 billion of mortgages in the first quarter), joins JPMorgan Chase in jettisoning wholesale.
Wells apparently sees the Realtor JVs as another area where it is working with third parties who are not employees. It cited regulatory change as the reason for the winnowing.
Granted, Wells and JPM are keeping their correspondent channels open, so not all TPOs are being scuttled. However, table funders set up the rules for broker relationships and can set any underwriting standards they want. Brokers will write business to those specs—that’s how they do business. Ultimately the responsibility for a successful or unsuccessful loan lies with the table funder. Unless there’s fraud involved, in which case it becomes a criminal matter to be pursued by authorities.
No doubt brokers had a big hand in the subprime debacle (although as we have noted before, it was a team effort rather than an individual one). But the barn door on that one has been wide open for years. The question is, how are brokers acting now? Are they bringing in good books of business? Are they faithfully following underwriting characteristics? What kind of overdues and defaults are being seen on post-2008 books of business?
Brokers are adaptable people. It’s instructive to remember that they started out as prime loan refi specialists before getting into subprime lending. What kind of business are they doing now? A lot of prime loan refis would be the guess here.
Tens of thousands of brokers have been fired or left the business. Is it the good ones or the bad ones that remain? It’s probably the good ones.
We’re not that familiar with Realtor joint ventures except to remember lenders must carefully consider RESPA violations. But the broker business is different now than it was. They shouldn’t be dumped unless they are table funding bad or fraudulent loans.
