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OCC’s $250m fine to Wells Fargo says bank can’t buy mortgage companies or new servicing. Too harsh?

 

OCC's $250m fine to Wells Fargo says bank can't buy mortgage companies or new servicing. Too harsh?

The OCC just fined Wells Fargo $250m for “unsafe or unsound practices with respect to its loss mitigation activities.” The consent order linked below details the fine’s rationale and the bank’s requirements under the fine (which is payable to the U.S. Treasury).

Most notable is Article VI, section 2e, which says the following (see excerpt below). Seems quite harsh to cut Wells off from buying bulk mortgage servicing or buying mortgage firms, even though they originate enough new loans on their own ($221.9b 12M2020 + $104.9b 6M2021) and service enough loans ($1.05t as of 2Q21) to not have to buy more servicing or mortgage firms.

But still, it does seem heavy-handed.

The Bank shall not acquire bulk residential mortgage servicing, residential mortgage servicing rights, and residential mortgage business entities. This restriction does not apply to retail or other Bank origination channels, refinancings by the Bank, contracts for new residential mortgage loans though the Bank’s broker or correspondent channels, or contractual relationships where the Bank does not ultimately service the loans. The restrictions of this sub-paragraph are not intended to disrupt the Bank’s existing residential mortgage servicing contracts.

Imagine if Big Tech fines restricted the ecosystem companies from buying smaller firms in their space. I realize some will always want this (for anti-monopolistic and/or stick-it-to-The-Man goals), but it stifles the whole ecosystem.

However, on the competitive side, this does open up opportunity for nonbank mortgage servicers.

Per Inside Mortgage Finance, the top 50 mortgage servicers do $10.7 trillion of the total $11.7 trillion outstanding as of 2Q21. Of these loans, 53.6% are serviced by nonbanks and 46.2% are serviced by banks. This has flipped from 47.7% nonbank and 52.3% bank servicing in 1Q21 as nonbanks have gotten stronger at servicing — and as banks have grown more cautious in today’s regulatory environment.

Here are a few links with more details on the OCC’s action.

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Reference:

OCC’s Consent Order To Wells Fargo Detailing $250m Fine & Terms

OCC announcement of Wells Fargo $250m fine

Wells hit with another fine, but also says CFPB order from 2016 sales practices has ended (CNBC)

 
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