Why banks are scared Wells Fargo will change.

If you don't know what a correspondent lender is, its one that buys loans from other banks.  Here's a good article I found about BOA leaving that area and Wells Fargo doing 30% of all correspondent lending.  Read and get better educated about what goes on behind the scenes in mortgage lending.

Smaller Players Easing Squeeze in Third-Party

The greatest fear for small- to medium-sized nonbanks is that Wells Fargo—the “big kahuna” of mortgage finance—will exit the correspondent lending space. And what a fear it is: in the most recent quarter in which there are final numbers, Wells bought a stunning $41 billion of loans from others, giving it a market share of 30% in the channel.

Of course, there is nothing out there to suggest that Wells has any intention of leaving the correspondent channel or scaling back its presence in mortgage banking—though its wholesale production has been slipping for several quarters.
Recently, Bank of America (the second-largest buyer of closed mortgages) exited correspondent lending, which on the surface appears to be a major blow. But believe or not, there appear to be plenty of midsized lenders out there, looking to enter both the correspondent and wholesale channels, which is good news for the industry.

But the problem with these new entrants is that they don't have any “scale,” at least not right now.
Case in point is Banc of Manhattan Capital in Woodland Hills, Calif. In November the bank-owned company entered the correspondent channel, doing little business its first month, but in December its volume jumped to $50 million.

“We want to achieve scale,” said BMC EVP Dan Baruch, an alumnus of both Bank of America, and Countrywide Financial Corp.

Baruch's chief duty at the company is overseeing warehouse lending, a business he helped launch at CFC last decade. Baruch admits that his firm's warehouse volume is small but hopes that it will change for the better over time.

(BMC is a national lender in both warehouse and correspondent.)
Meanwhile, refinancings remain strong, accounting for about 70% of production. In a hot refi environment third-party lending (brokers/correspondents) tends to do better and figures collected by National Mortgage News bear that out.

In 3Q retail lending accounted for 52% of production nationwide compared to 8% for wholesale, and 40% for correspondent. The retail market share has been slipping steadily since the first quarter of 2011 when the channel registered a multiyear high of 56%.

It's long been said that wholesale and correspondent lending are cheaper than retail when it comes to counting costs—but during the housing/mortgage boom third-party lending produced lower-quality loans (or so it's been argued).

Unlike commercial bankers, mortgage bankers tend to be more entrepreneurial.
When a large player leaves a sector (such as correspondent or wholesale) almost immediately some company somewhere seizes on the sudden opportunity to pickup new business.

Last week's news that CitiMortgage was exiting the wholesale channel was received poorly in some sectors of the industry, until it was pointed out (by this newspaper) that table funding accounts for just 9% of Citi's overall residential production.

Will Citi be missed? Not according to some brokers I spoke with. “To tell you the truth their rates were nothing special,” said one New Jersey broker.

Who then might fill Citi's shoes? Maybe a firm like Cole Taylor Mortgage in Chicago. Two years ago Willie Newman, a former top executive at InterFirst Mortgage, joined the bank with the stated goal of growing its presence in residential finance.

A wholesale and retail lender, Cole Taylor funded $1.1 billion in 2011, more than doubling the bank's volume. In a few weeks it will receive its 33rd state lending license. That's not exactly in the same league as Citi, but it's a darn good start.