Getting out from under $1.95 trillion cap would allow the bank to grow its deposit base, providing more room on the balance sheet to originate jumbo mortgages too big for Fannie and Freddie.
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Wells Fargo took another step Tuesday toward getting out from under a $1.95 trillion asset cap that’s limited the bank’s growth, with the Federal Reserve Board announcing the termination of two enforcement actions.
The enforcement actions — which included consent orders tied to alleged deficiencies in mortgage loan servicing and mortgage lending practices at a former Wells Fargo subsidiary — were issued in 2011.
“The termination of these enforcement actions does not affect the Board’s 2018 enforcement action, which addressed widespread compliance issues by restricting Wells Fargo’s growth, and remains effective,” Fed officials said in an announcement.
While the asset cap remains in place for now, Wells Fargo’s regulators have closed a total of nine consent orders since 2019.
Just last week, Wells Fargo was ruled to have fulfilled its obligations under the terms of a $3.7 billion settlement in 2022 with the Consumer Financial Protection Bureau (CFPB), which alleged the bank harmed millions of consumers over a period of several years through widespread mismanagement of mortgages, auto loans and deposit accounts.
“I am happy to confirm that the Federal Reserve has terminated two longstanding consent orders,” Wells Fargo CEO Charlie Scharf said, in a statement. “Coupled with last week’s announcement that the CFPB’s 2022 consent order terminated, today’s news is another important sign that we continue to make clear, meaningful progress to resolve our historical matters.”
Scharf said “Wells Fargo is a different company today,” and that bank executives are “confident in our ability to complete the work required in our remaining consent orders.”
Before the asset cap can be lifted, the Fed must sign off on a third-party review that Wells Fargo submitted in September detailing the changes it’s made to improve its risk and control procedures, Bloomberg reported.
Some financial analysts expect the asset cap to be lifted this year, which would allow Wells Fargo to start growing its deposit base and lending businesses. Wells Fargo would have more room on its balance sheet to originate jumbo mortgages that exceed Fannie Mae and Freddie Mac’s $806,500 conforming loan limit in most markets and hold those loans on its books.
Once the nation’s largest mortgage lender, Wells Fargo was overtaken by direct lender Quicken Loans (now Rocket Mortgage) in 2017 and fell out of the top 10 in the face of regulatory issues, a shrinking branch footprint and rising interest rates.
Charlie Scharf
Scharf has said Wells Fargo is “not interested in being extraordinarily large in the mortgage business, just for the sake of being in the mortgage business.”
But theoretically, technology like artificial intelligence employed by the nation’s biggest mortgage lenders — UWM and Rocket — could allow Wells Fargo to scale its mortgage business despite its reduced branch office footprint and staffing levels.
Whatever the future holds, the bank’s board of directors is pleased with last year’s results and, on Jan. 30, approved $31.2 million in 2024 compensation to Scharf, who became Wells Fargo’s CEO in 2019.
In awarding Scharf $28.7 million in bonuses (including $7.2 million in cash and $21.5 million in shares and share rights) on top of his $2.5 million base salary, the board noted his “strong leadership” in making “significant progress” in strengthening Wells Fargo’s risk and control infrastructure, “which remains the company’s number-one priority.”
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