The Wells Fargo CEO said the industry is undergoing a period of overcapacity
The CEO of the largest home lender in the US expects 2018 to see increased competition for mortgage fees, according to a Bloomberg report.
Wells Fargo CEO Tim Sloan said he expects banks and their competitors to see margins narrow further as they fight over a smaller market.
“We’re going through a period of some level of overcapacity, and generally when you go through periods of overcapacity in an industry, pricing gets a little bit more competitive,” Sloan said at an investor conference in New York.
During the first quarter, Wells Fargo saw a 43% drop in its home-loan origination and sales revenues. Additionally, the bank saw a year-over-year decline in its non-interest income from mortgage banking to $4.4 billion in 2017 from $6.1 billion in 2016.
According to the report, increases in interest rates made mortgages more expensive and drove 2017 originations of home loans, specially refinances, lower. Market participants also faced more pressure from independent mortgage companies like Quicken Loans that have looser regulations and increasing market shares.
“Not only have we seen the size of the overall market decline as interest rates have risen, but also we’ve seen tighter production margins in that business due to a shift in our origination mix from the retail channel to the correspondent channel and increased competitive pressures in both channels,” Wells Fargo CFO John Shrewsberry said.
While mortgage fees appear set to be challenged this year, Sloan said the credit card and wealth- and investment-management businesses offer opportunities for growth.
