Well, another day in 2025, another mortgage lender goes out of business. This time it is the depository Washington Federal Bank, or WaFd for short.
The Seattle-based bank, which has been in the mortgage business for over 100 years, cited lower profits and greater risk for the decision.
As we all know, it has also been a very tough few years in the mortgage industry, with mortgage rates almost tripling during that time.
This has made refinancing much less common, while also putting pressure on potential home buyers.
The decision represents another loss for banks in the home loan space, which continue to see their market share decline as non-banks gain.
WaFd will no longer offer housing loans to its customers
Washington Federal Bank (NASDAQ: WAFD ) announced yesterday that it was exiting its mortgage business in its first quarter earnings release.
And it was a pretty interesting revelation because they went into detail about why they’re leaving.
Unlike the fast and loose days of the early 2000s when banks and lenders went under due to sloppy underwriting, today it’s more about mortgages being a commodity.
In other words, they’re all pretty much the same these days. Boring old 30 year fixed rate mortgages backed by government entities like Fannie Mae and Freddie Mac or FHA/VA.
This means borrowers can get the same loan pretty much anywhere, so if you’re not serious about competing, what’s the point?
The fact that the competition is all fighting for the same thing, and much less of it these days with much higher prices, also means that profitability falls and credit risk rises.
It was the #1 reason why they leave the home loan space.
The other main reason is that while technology has made it easier for homeowners to refinance a mortgage, “it increases the interest rate risk for banks that hold mortgages.”
And unlike the non-banks, they kept their loans in the portfolio.
Another related issue is that they became less comfortable offering low and no down payment offers as a lender that keeps all the loans on their balance sheet.
“For example, there are several government programs that require no down payment, and our performance is being compared to lenders that offer these programs and are going to sell.”
Long story short, banks take more risk than non-banks, turning around and selling their loans almost immediately after origination. So it doesn’t make sense to keep going.
The move will result in a workforce reduction of 8%
WaFd said its “goal is always to offer products and services to our customers where WaFd Bank can add value,” but concluded that is no longer happening in the mortgage space.
They will also stop offering HELOCs, which usually come only from depository banks, another blow to homeowners who want to tap into their home equity without messing up a low-interest loan.
Their mortgage exit will result in an 8% reduction in their workforce.
It’s unclear how many layoffs that will be, but it’s another loss for the mortgage industry as we start 2025.
They said they would keep all existing home loans and HELOCs on their books to ensure there is no disruption to current customers.
That means non-banks will have to catch on, though that comes with its own risks and perhaps fewer loan options for homebuyers today.
It also makes you wonder if banks will continue to reduce and/or exit home loans if things don’t change.
Read on: Check out the latest mortgage layoffs, closings and mergers
