Welp, one day in 2025, another mortgage lender is calling it quits. It is now the depository of the Washington Federal Bank, or WaFd for short.
The Seattle-based bank, which has been in the mortgage business for more than 100 years, cited low profitability and high risk for the decision.
As we all know, it’s also been a very tough few years for the mortgage industry, with mortgage interest rates nearly tripling in that time.
This has made reinvestment less common, while putting pressure on would-be home buyers.
The decision represents another loss for banks in the residential space, which continue to see market share shrink as non-banks gain.
WaFd Can No Longer Offer Home Loans To Its Customers
Washington Federal Bank (NASDAQ: WAFD) made the announcement to exit its mortgage business in its first quarter earnings release yesterday.
And it was a very interesting revelation because they went into the details of why they came out.
Unlike the fast and loose days of the early 2000s when banks and lenders went under because of bad underwriting, today it’s big on mortgages.
In other words, they’re all pretty much the same these days. 30-year fixed-rate mortgages are backed by government agencies such as Fannie Mae and Freddie Mac, or the FHA/VA.
This means borrowers can get the same loan almost anywhere, so if you’re not willing to compete, what’s the point?
That competition is all fighting for the same thing, and too little of it these days at very high prices, also means lower profits and higher credit risk.
That was the #1 reason why they moved out of the residential area.
Another main reason is that while technology has made it easier for homeowners to refinance their mortgages, they “increase the interest rate risk for banks that hold mortgages.”
And unlike non-banks, they kept their loans in portfolios.
Another related problem is that they have grown uncomfortable with offering low and no down payment offerings as a lender that keeps all the debt on their balance sheet.
“For example, there are many government programs that do not require payment, and our performance is comparable to lenders who offer these programs and start selling.”
Long story short, banks take more risk than non-banks who turn around and sell their loans soon after origination. So it makes no sense to stick around.
The move will result in an 8% reduction in staff.
WaFd said its “goal is to always provide products and services to our customers where WaFd Bank can add value,” but concluded that that is no longer happening in the loan space.
They will also stop offering HELOCs, which usually only come from savings banks, another concern for homeowners who want to gain their equity without compromising a low-quality first mortgage.
Their exit from residential mortgages will result in an 8% reduction in the workforce.
It’s unclear how many layoffs there will be, but it’s yet another loss for the mortgage industry as we enter 2025.
They said they will keep all existing loans and HELOCs on their books to ensure no disruption to current customers.
This means that non-banks will need to pick up the slack, although that comes with its own risks and fewer loan options for home buyers today.
It also makes you wonder if the banks will continue to reduce and/or abandon the housing market if things don’t change.
Read on: Check out the latest mortgage foreclosures, foreclosures, and mergers
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