Analyst: Wells Fargo’s 34% mortgage share troubles regulators

Has Wells Fargo Home Loans grown uncomfortably large amid concerns over too-big-to-fail banks?

The Wells Fargo & Co. unit has become so dominant in the mortgage business that federal regulators are worried, according to veteran analyst Paul J. Miller of FBR Capital Markets.

“The government is concerned about Wells Fargo’s concentration,” Miller, a former bank examiner for the Federal Reserve Bank of Philadelphia, told Bloomberg News in a story published Thursday.

Miller couldn’t be reached. A Wells Fargo spokesman would say only: “We always work closely with our regulators.”

Spokesmen for the U.S. Office of the Comptroller of the Currency, which regulates national banks, didn’t immediately respond to request for comment. A Federal Reserve spokeswoman declined to comment.

But statistics on first-quarter mortgage lending show just how far the San Francisco bank has left rivals in the dust at a time when the nation’s battered housing markets are showing signs of bottoming.

Wells Fargo made 34% of the $385 billion of mortgages originated in the quarter, up from 30% in the fourth quarter of 2011, according to Inside Mortgage Finance. Its share was greater than that of its seven closest rivals combined.

Wells’ $130.4 billion in new home loans during the period was a 51.8% increase over its year-earlier production, as the bank catered to homeowners eager to refinance at today’s record low rates.

Competitive pricing appeared to be a factor. A recent study by Keefe, Bruyette & Woods showed Wells with less of a profit margin on loan sales than all of its major competitor except US Bancorp, a good indication the mortgages were being made at lower interest rates.

Wells officials have said recently they love the mortgage business but expressed some surprise at how dominant the bank has become.

“Two years ago I don’t think we would have imagined that our market share would be where it would be today,” Wells Chief Financial Officer Timothy Sloan said at the RBC Financial Services Conference in Boston on Tuesday. “We’re going to continue to want to grow.”

JPMorgan Chase & Co. was a distant second in the origination derby, with not even a third as many new loans. Its $38.4 billion in first-quarter originations was up 6.1% from a year earlier.

At No. 3 was U.S. Bancorp, the Minneapolis “super-regional” bank, whose $19.2 billion in new home loans was up 58%.

The two banks hardest hit by the near-meltdown of the financial industry were lagging behind. Citigroup Inc. was in fifth place, its $15.7 billion in new mortgages up just 2.7% from a year earlier.

The biggest decliner was Bank of America Corp., once the largest mortgage lender and currently No. 4. The Charlotte, N.C., bank has become the amazing shrinking lender as it deals with enormous losses from its 2008 acquisition of high-risk mortgage specialist Countrywide Financial Corp. of Calabasas.

BofA’s $16 billion in first-quarter home loans was down 72.6%, according to Inside Mortgage Finance.

BofA Chief Executive Brian Moynihan exited the reverse mortgage business last year and closed down its correspondent division, which had bought loans in bulk from smaller mortgage lenders and accounted for more than half of BofA’s originations.

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