Two years ago Wells Fargo and Bank of America were running neck-and-neck, competing against each other to become the nation's largest home lender. But today, Wells has emerged not only as the clear victor—by far—but B of A is now a shadow of its former self in mortgage banking, falling to fourth place in loan production.
Late last week, National Mortgage News was provided a memo, highlighting B of A's latest bombshell in mortgage banking: that it was suspending all cash-out refinancing deals until further notice. The bank was also on the verge of unloading another large MSR package.
Meanwhile, with fourth-quarter results flowing in Wells revealed that it has no intention of cutting back on either lending or servicing. In short, never before in the history of mortgage banking has one firm had such a dominant share of the market.
By the time 4Q results are tallied for the industry Wells' origination share could total 30%.
Unlike B of A, it remains committed to wholesale lending, correspondent and warehouse finance.
For the period ending Dec. 31, Wells funded $120 billion of home mortgages—more than three-times its closest competitor, JPMorgan Chase. Compared to the third quarter Wells grew its originations by 35%.
Almost half of its production entails the purchase of closed loans in the secondary market.
Bank of America, however, remained the leader in FHA production. Wells would not provide its FHA volume but is known to trend toward conventional mortgages instead.
Most lenders, however, experienced production declines compared to the fourth quarter of 2010, but that period was one in which refinancings were accelerating across the board.
And most of the top-ranked firms continue to struggle with loan buybacks from Fannie Mae and Freddie Mac. Even Wells is seeing costs tied to loan repurchases increase. It took a $404 million charge in the fourth quarter for secondary market buybacks, compared to $390 million the previous quarter.
Citigroup repurchased 6,800 loans in 2011, up 80% from the prior year. But in 4Q its buyback-related losses fell slightly to $200 million compared to $226 million in the prior quarter.
During an earnings call, Citigroup chief executive officer John Gerspach noted that the bank has set aside $30.1 billion of loan loss reserves with $10 billion allocated to cover possible losses on North American mortgages.
“Mortgage-related issues are the single largest source of risk facing the U.S. banking industry,” Gerspach said.
Discussing its earnings and mortgages woes, B of A executives noted they continue to have disagreements with the GSEs over repurchase requests.
The buyback situation has even caught the eye of the Federal Reserve Board where officials have expressed concerns that lenders have tightened their underwriting standards to protect themselves.
Fed Gov. Elizabeth Duke recently said the GSEs' loan buyback policies are contributing to the “extraordinarily tight credit standards that currently prevail” in the market. She noted that lenders are hesitant to offer mortgages to borrowers in the lower range of GSE purchase parameters, fearing defaults and repurchases.
“Although the ability of the GSEs to ‘put-back' loans to lenders helps to protect the taxpayer from losses, an open question is whether the costs of the associated contraction in credit availability outweigh the benefits of risk mitigation,” Duke told a meeting of the Virginia Bankers Association.
Brian Collins contributed to this story
