Loan hemogency raises stability concerns

San Francisco: Wells Fargo & Co.’s grip on the US 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 US Bancorp, made half of all US home loans in the first six months, according to Inside Mortgage Finance, an industry publication. Wells Fargo alone controlled 33.1 per cent.

In mortgage servicing, which involves billing and collections, four firms have 50 per cent of the business, and Wells Fargo is No. 1 in that field, too, with 18.5 per cent.

As recently as the 1990s, a company with 7 per cent 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, according to David Stevens, chief executive officer at the Mortgage Bankers Association and a former official in the US Department of Housing and Urban Development.

Wells Fargo, led by Chief Executive Officer John Stumpf, 58, controlled 15 per cent 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.

“We have always taken a longer-term view of the home lending business and we have succeeded by lending responsibly to customers, one at a time.” Adams said the lender should be judged by its share of the retail channel, 16.3 per cent in the first quarter, rather than the entire business, which also involves buying loans from small- and medium-sized lenders.

In January, sales managers in the San Francisco Bay Area dressed as cowboys to urge retail loan officers to reach for 40 per cent of the new-home purchase market, according to two attendees who asked that their names not be used because they weren’t authorized to speak publicly.

Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has said he’s concerned about concentration and urged officials in a May speech to consider changes. Freddie Mac — with Fannie Mae, the recipients of nearly $190 billion in government aid — bought 82 per cent of the single-family loans it purchased in 2011 from 10 firms, filings show, with 40 per cent from Wells Fargo and JPMorgan. Fannie Mae and Freddie Mac rely on Wells Fargo and other large servicers to collect payments for the loans they guarantee. That makes them vulnerable to the business practices and financial health of a few large banks, said Steve Linick, the Federal Housing Finance Agency’s inspector general. The top 10 serviced 75 per cent of single-family mortgages guaranteed by Fannie Mae, according to company filings.

“A limited number of servicers poses a safety and soundness risk to the enterprises,” Linick said in a phone interview.

This “ultimately could cause losses to taxpayers.” The effect on servicing has also drawn the attention of Ted Tozer, president of Ginnie Mae, a government-owned corporation that guarantees mortgage bonds holding loans backed by the Federal Housing Administration and other agencies.

“If the quality of servicing deteriorates, you have to deal with it and that puts a lot of oversight responsibility on us, no question about it,” said Tozer, whose Washington-based operation guarantees more than $1 trillion of mortgage-backed securities. “That’s one of the big challenges.”