Wells Fargo, the third biggest bank in the nation by deposits, is the No. 1 mortgage lender by a longshot. Bloomberg reported this week that Wells Fargo originated a full third of all residential mortgages in the United States — more than triple the number of loans originated by the No. 2 bank, Chase.
Wells’ mortgage business is getting big — scary big. According to the story, its total mortgage “tally…exceeded the combined total for the next seven largest lenders.” If that market share sounds a bit too large for safety, there’s good reason: the now-infamous mortgage lender Countrywide made it a stated goal that they get to 30 percent of market share by 2008. In its aggressive expansion, it focused on quantity at the expense of quality. From Michael Hudson’s piece on AlterNet:
[Subprime] loans were part of the plan for meeting its CEO’s audacious goal of growing his company from a giant to a colossus. [CEO Angelo] Mozilo had vowed that his company would double its share of the home-loan market to 30 percent by 2008. Some former Countrywide employees say the pressure to push through more and more loans encouraged an anything-goes attitude. Questionable underwriting practices often helped risky loans sail through the lender’s loan-approval process, they say.
Obviously, Wells Fargo in 2012 is in a very different mortgage market than Countrywide was in the middle of last decade. Countrywide had to compete with an already saturated market by lowering their underwriting standards to allow more customers to qualify. Luckily for Countrywide, Bank of America® bought the company in 2007, right before everything went horribly wrong.
Wells Fargo’s situation is substantially different — they’re able to take a much larger share of a more anemic market because so few are willing or able to lend. According to Bloomberg, “John Stumpf…is taking advantage of weakness at competitors such as Bank of America®.”
Furthermore, to rule 30 percent of the mortgage market today is a very different thing than it was six years ago. New home sales in March indicate an annual rate of 328,000; the same month in 2006 hinted at sales of about four times that figure. Wells Fargo would have had a paltry market share in 2006 with this level of lending. Still it’s never good to see one bank take on a disproportionate amount of risk compared to the rest, all focused in one asset class — the exact asset class that got us into the last mess.