Wells Fargo & Co.'s grip on the U.S. mortgage market has tripped alarms among regulators and lawmakers concerned that the bank's control over one of every three new loans could hurt consumers and undermine markets.
Wells Fargo and its two largest rivals, JPMorgan Chase & Co. and U.S. Bancorp, made half of all U.S. home loans in the first six months, says Inside Mortgage Finance, an industry publication. Wells Fargo alone controlled 33.1 percent.
In mortgage servicing, which involves billing and collections, four firms have 50 percent of the business, and Wells Fargo is No. 1 in that field, too, with 18.5 percent.
The concentration in the mortgage business has drawn warnings from the inspector general for Fannie Mae and Freddie Mac, the head of Ginnie Mae, Fitch Ratings, and congressmen, including one from Wells Fargo's home state, about growing risks to borrowers, taxpayers, investors, housing markets and the financial system.
As recently as the 1990s, a company with 7 percent market share would have been considered a large player in a market that was broadly distributed among savings and loans, community banks, credit unions, mortgage brokers and commercial banks.
Wells Fargo, led by CEO John Stumpf, 58, controlled 15 percent of the market in 2007, before the financial crisis triggered by falling home prices and souring mortgages hobbled rivals such as Bank of America and Citigroup.
"If the market is too concentrated on one company, and if they were to change their strategy around mortgage originations or got into financial trouble and had to leave the market altogether, you could have market disruptions," said David Stevens, CEO at the Mortgage Bankers Association and a former official in the U.S. Department of Housing and Urban Development.
Officials aren't suggesting that Wells Fargo did anything improper to emerge as the biggest player in mortgages, or that the San Francisco-based bank, ranked fourth by assets in the U.S., is risking its own soundness.
Instead, as they seek to avoid another financial crisis, regulators' focus is on what might happen if Wells Fargo's enthusiasm wanes for housing, which comprised almost a fifth of the U.S. economy in more prosperous years. Last month, the bank said it will stop funding loans originated and sold by independent mortgage brokers. "The home-lending business is a key part of Wells Fargo's strategic vision for the future," said Vickee Adams, a bank spokeswoman.
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