Wells Fargo saw mortgage loan production fall by 8 percent in 2021, with the bank making 27 percent fewer loans to homebuyers during a year in which it closed 270 branches and laid off 16,000 employees to cut costs.

In reporting fourth quarter results, Wells Fargo said it originated $205 billion in home loans in 2021, funding more than 193,000 purchase loans and refinancing over 392,000 mortgages. That’s down from $223 billion in 2020 loan volume, when the bank financed 265,000 home purchases and refinanced 370,000 mortgages.

Wells Fargo has been the nation’s largest provider of purchase mortgages in recent years, but Rocket Cos. CEO Jay Farner has set his company’s sights on overtaking Wells Fargo in the next 12 to 18 months.

Mortgage lending remains the second biggest revenue generator within Wells Fargo’s consumer banking and lending segment, which includes four business lines: consumer and small business banking, home lending, credit cards, auto loans, and personal lending.

Wells Fargo consumer banking and lending revenue

Revenue, in billions of dollars, generated Wells Fargo consumer banking and lending segment during the fourth quarter of 2021. Source: Wells Fargo investor presentation.

Wells Fargo saw fourth quarter revenue from consumer and small business banking grow by 4 percent, to $4.872 billion. But revenue from home lending slipped 8 percent from a year ago, to $1.843 billion. Revenue from personal lending was also down by 9 percent, but that’s a smaller line of business for Wells Fargo, generating $129 million in fourth quarter revenue.

The biggest source of growth was auto lending, with revenue up 17 percent from a year ago, to $470 million, while credit card revenue was up by a more modest 3 percent, to $1.419 billion.

In addition to the $8.7 billion in fourth quarter revenue generated by consumer banking and lending, Wells Fargo is also engaged in commercial banking, corporate and investment banking, and wealth and investment management.

Across all four segments, Wells Fargo reported fourth quarter revenue was up 13 percent, to $20.9 billion, helping the bank post a $5.8 billion profit for the quarter. Shares in Wells Fargo were up nearly 4 percent Friday, closing at $58.06, not far from a 52-week high of $58.87.

More reliance on branches

Even as Wells Fargo closes branches and lays off employees to cut costs, it’s become more reliant on them as the mortgage industry pivots from refinancing mortgages to financing home purchases.

Not only did Wells Fargo originate fewer mortgage loans overall in 2021, but profit margins were also down, as competition for less profitable purchase loans intensified at the end of the year.

“Home lending revenue declined 8 percent from a year ago, primarily due to lower mortgage banking income driven by lower gain and sale margins and origination volumes,” Wells Fargo CFO Mike Santomassimo said on an investor call. “Even before the recent rate backup we started to see a drop in application volume in December. And we expect originations to decline in 2022, which will put pressure on margins as the industry adapts to the lower volume.”

Mortgage originations by quarter

Wells Fargo mortgage originations by quarter, in billions of dollars. Source: Wells Fargo investor presentations.

Wells Fargo’s mortgage production during the pandemic peaked at $61.6 billion during the third quarter of 2020, dropping below pre-pandemic levels in the final three months of 2021, with $48.1 billion in mortgages funded.

“Our mortgage originations declined 7 percent from the third quarter, and we expect our first quarter originations to continue to decline due to lower refinance activity and the typical seasonal slowdown in the purchase market,” Santomassimo said.

Wells Fargo’s investor presentation revealed that it’s become more reliant on its retail branches as purchase loans become a bigger part of the mortgage market for the industry as a whole.

During the last three months of 2021, Wells Fargo’s retail branches accounted for 68 percent of total mortgage loan originations, up from 46 percent during the fourth quarter of 2019. That’s despite the fact that the company has shuttered 575 branches since 2019, an 11 percent reduction.

In an investor presentation, Wells Fargo said that this year it intends to make process automation, “including mortgage and auto underwriting decisioning and funding, and digitization of mortgage servicing and card activities,” an area of focus.

Non-conforming mortgages, which are not eligible for purchase by Fannie Mae and Freddie Mac, are a bright spot for Wells Fargo and other banks that can loan against their deposits.

“We increased our non-conforming originations in the fourth quarter and have grown our non-conforming portfolio for seven consecutive months, reflecting the improvements in our capabilities as well as the reintroduction of cash out refinancing late in the first quarter of 2021,” Santomassimo said.

Get Inman’s Extra Credit Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter