QUESTION:

We hear that big banks are getting out of residential mortgage lending. Is that true?

Answer:

Well, they’re not getting out, but they sure are pulling back. For example, in 2012, Wells-Fargo, the nation’s top mortgage lender, funded 125 billion in mortgages in the fourth quarter. In the same period for 2015, volume was down to 47.5 billion. J.P. Morgan-Chase saw a similar decline: 51.2 billion in the last quarter of 2012, and only 22.5 billion for 2015’s final quarter.

And some observers are predicting that some of the Too Big to Fail guys might get out of the business altogether, although Wells and Chase will probably stay in the game, given their full service retail models.

Why is this happening?

For the same reason that most enterprises get out of a business line: risk and cost.

And, as always, risk and cost go hand in hand. A business spends money to mitigate risk, but if the risk persists, eventually the activity gets dialed down significantly, or exited completely.

Wells-Fargo just paid a 1.2 billion dollar fine to the Treasury for bad FHA insured loans that the government picked up the tab for on foreclosed loans. Banks have harkened back to what Senator Everett Dirksen famously said back in the ‘60’s: “A billion here, a billion there, and pretty soon it adds up to real money”.

Pat Dalrymple is a former bank president who has been making mortgage loans in western Colorado since 1967. He’s currently an advisor to Grand Mountain Bank’s Mortgage Lending Outreach Initiative. He welcomes your questions on lending and banking, and can be reached at dalrymple@sopris.net.