TheMReport — News and strategies for the evolving mortgage marketplace.
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FEATURE Value-Added Vision T tions change, market share might go up or down, but regardless, Wells simply is intent on serving its customers well. the bank is maintaining a strong value, enhancing its attractive in the marketplace. He believes Wells' foreseeable future is promising and that it could be a stabilizing influ- ence on the industry. Heid said as market condi- oo big to fail or not, Rossi's encouraged in part by the fact doesn't believe Wells is any imminent of being overtaken, largely because other mortgage originators still are repairing their balance sheets. However, that might not stop them from trying, he added. "There's a lot of big boys out there, and if they want to step into this market, they have the ability and will if they see a reason to," he said. "Not in this environment, Along those lines, Thornberg Rossi of the possibility of Wells getting muscled out. "I've heard no " said phasized Heid. "Customers should have choices, it sounds like he believes the bank has leverage. "Unlike some competitors, Wells is part of a well- capitalized company that provides the strength and stability to sensibly grow home lending, " he said. Besides, for the plucking, Garritano believes things could get a bit Whether or not Wells is prime " he said. one come forward and say any- thing other than they don't like the mortgage business right now." Wells embraces competition, em- more interesting among the top five, whom he noted will have more say in the mortgage space and, as a result, must fight harder to differentiate themselves. If all of the top five offer the same process, products, and pricing, over time, further consolidation at the top is inevitable, he continued. "The top five lenders are fierce competitors among themselves, which is good," said Garritano. "You don't want to have any one player dominate the market." Not Without My Lawyer W ells Fargo Home Mortgage, the nation's largest residential home mortgage originator, will pay at least $175 million to settle accusa- tions that it discriminated against black and Hispanic borrowers, violating fair lending laws, the Justice Department (DOJ) recently announced. The penalty's "a huge lesson learned," said Clifford Rossi, executive in residence and Tyser Teaching Fellow at the Robert H. Smith School of Business at the University of Maryland. Meantime, Tony Garritano, founder of the Progress in Lending Association, said the government didn't have any choice in the matter. "The government has to curtail predatory practices," he said. "I don't think the industry's done a great job of policing itself, and a lot of predatory practices have been revealed, whether they were intentional or not." Nevertheless, Garritano's less than enamored by what he perceives as the government's relative unwillingness to consider suggestions for improving the system from industry members themselves. "I think there's an overriding effect among Washington [officials] that mortgage lenders and bankers are part of the problem, but not necessarily the solution," he said. "[It appears] Washington plans to crack down and dictate the moves of lenders and bankers and believes everything will be fine." But that's impractical, he believes. "[Washington] has to take feed- back; there has to be a more valid partnership between lenders and the government," Garritano said. At the same time, Charles Thornberg of Beacon Economics said to keep in mind that external mortgage brokers—rather than Wells Fargo directly—were culpable in this issue. Wells had a model by which inde- pendent mortgage brokers were permitted to run mortgages through the bank, continued Thornberg, founding partner of Beacon, a research and consulting firm specializing in analyses of real estate markets. The U.S Department of Justice claims are based on a statistical sur- vey of Wells Fargo Home Mortgage loans between 2004 and 2009, and In addition to the company's headline-grabbing lending operations, Wells Fargo's legal maneuvers have also generated buzz in the marketplace. the claims primarily relate to mortgages priced and sold to consumers by independent mortgage brokers, Wells said in a statement. Wells Fargo settled this matter because "we believe it is in the best interest of our team members, customers, communities, and investors to avoid a long and costly legal fight and to instead devote our resources to continuing to contribute to the country's housing recovery," according to a statement. In light of the settlement, Wells recently discontinued its wholesale business, a decision that bank spokesman James Hines said was driven by the "complexities of the mortgage wholesale—or broker—business in the current environment." That means the legal theories that underlie the settlement with the DOJ would require that Wells take direct responsibility for the interactions independent brokers have with borrowers, he noted. Mortgage brokers, which operate as independent businesses and are not employed by Wells Fargo, price the loans they sell, he explained. "Wells Fargo can't set loan prices for independent brokers nor control the combined effect of the negotiations that thousands of these independent businesses have with their customers," he said. Through its decision to no longer fund mortgages by independent mortgage brokers, Wells can control how that commitment is met on every loan Wells Fargo makes, he noted. Mark Williams, executive in residence at Boston University's School of Management, added that Wells Fargo's settlement in the discrimination suit and exit from the less lucrative wholesale lending business frees it up to put more capital at risk in mortgage lending: a strategy Wachovia and Countrywide proved fraught with financial danger, noted Williams, who also teaches finance at the university. Ultimately, Rossi's not so sure the punishment levied against Wells will help guard against similar issues in the future. "Many of the same sins have been revisited. We have a bad habit of not remembering," added Rossi. "You cant fully regulate human behavior." THE M REPORT | 37