Last Week Was Newsy

January 16, 2023

In the headlines last week was the announced exit of Wells Fargo from a considerable piece of its home lending. Namely, Wells unveiled plans to step back from the housing market, and instead of being a preeminent lender in the retail and correspondent channels is shrinking its mortgage portfolio by restricting loans to only bank clients and minority borrowers. While the business was one of the company's biggest profit generators over the years, things have gotten tougher amid regulatory pressure and higher interest rates.


Orion’s brokers who have been in the business for several years know that Wells exited wholesale lending in mid-2012, and in a similar move is closing its Correspondent lending business. Wells’ correspondent channel, by which it buys closed loans from hundreds, if not thousands, of smaller lenders around the United States, has been a key business channel for many years. The division accounted for nearly 40% of its mortgage volume as of Q3 2022. Wells Fargo is also reducing the size of its servicing portfolio by selling billions of dollars’ worth of mortgage servicing rights to other players in the sector.


The CEO ofConsumer Lending said, “We determined that our home-lending business was too large, both in terms of overall size and its scope." As traditional banks like JP Morgan Chase and Bank of America, despite having an established branch network and low cost of funds, continue to withdraw from the industry, non-bank entities like Orion have filled the void. We remain committed to our brokers, your clients, and wholesale lending.


Meanwhile, we’ve started the year with decent economic news. In the first week of January, we had nearly perfect employment data from December. The U.S. economy added 223k jobs “not on farms” in December, higher than expected. The unemployment rate rang in at 3.5 percent (down from 3.6 percent last month) and hourly earnings were +.3 percent, +4.6 percent year over year, so cooling down alittle which is what the Federal Reserve would like to see.


Last week we learned that December’s Consumer Price Index was -.1 from November, and Core CPI (ex-food and energy) rose .3, as expected. Year-over-year, increases were as expected at 6.5 percent and 5.7 percent, down from 7.1 percent and 6.0 percent, respectively. Apparently investors bet these new inflation statistics will allow the Fed to slow the pace of its interest rate hikes.


Many believe that we’ll see just two more 25 basis point (.25 percent) short-term ratehikes, which means the market believes that the Federal Reserve will soon change its outlook. Those with the opposing view say that inflation is only coming down in select categories, like energy and vehicle prices, while other areas, like wages and housing, remain major issues the Fed will be forced to address to avoid a 1970s-style inflation rebound. Yet money is being put on the more optimistic scenario: Markets are now pricing in a 96% probability of a 25 bps hike at the end of the month, compared to the 77% chance that was seen prior to the data release, according to the CME's Fed Watch Tool.

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