Wells/Norwest's Gyber Strategy

Mortgage Banking, March, 2000 by Steve Bergsman

Wells Fargo Home Mortgage (the old Norwest) is passing some rivals as it aggressively moves to jump on the online mortgage bandwagon. On the strength of Wells' online banking customers, the mortgage site is pulling in major traffic. And business-to-business e-commerce is also part of the strategy.

LAST YEAR WAS A GOOD ONE FOR NORWEST MORTGAGE INC., THE DES MOINES-BASED SUBSIDIARY OF THE OLD NORWEST CORPORATION. But it was also a year of incredible changes--the most important of which was the merger of Norwest Mortgage's parent with Wells Fargo & Co., creating a mammoth diversified financial services company with $196 billion in assets and 15 million customers.

The merger was just part of a number of vast alterations put into place last year by Norwest Mortgage. It also acquired the prime lending business of California-based WMC Mortgage Corporation, strengthening its capacity among home builders; it set in place its Internet strategy, launching a new retail site in August and forming a marketing agreement with Homestore.com; and it hired and promoted a number of key people in the organization, thereby improving its management structure.

Perhaps the most recognizable change of all didn't get to happen last year, but had to wait until 2000--and that was the retirement of the Norwest Mortgage corporate name and ascendancy of the new appellation, Wells Fargo Home Mortgage. So down will go the old signs. Existing business cards and stationery tossed away All to be replaced by the red and black corporate colors and little stagecoach logo of the venerable Wells Fargo Company.

The old Norwest Mortgage posted a record $277 million in income in 1999, an increase of nearly 27 percent over earnings of $217.4 million reported the year earlier. Norwest was able to post these healthy numbers despite originations of just $82 billion, a 25 percent drop from 1998's record-setting origination volume of $109.4 billion. The company's retail business, which served customers through more than 1,100 locations nationwide, accounted for $41.5 billion, or 51 percent, of the company's originations; correspondent and wholesale lending accounted for the remainder, or $40.5 billion.

A third part of Norwest Mortgage's business was mortgage servicing, and that portfolio surpassed $279.6 billion in the fourth quarter.

"We have three main production groups," explains Peter Wissinger, president and chief operating officer of Wells Fargo Home Mortgage. "Each contributes differently, depending on interest rates. In 1998, most of our earnings came from production; little of it came from servicing. In a year like 1999, most earnings came from servicing and little of it came from production."

The vacillation between production and servicing wasn't from happenstance. "Our goal is to deliver consistent growth in earnings to our parent, and when you are in a cyclical business to begin with, you have to think about how you can structure yourself in a way that you are less vulnerable to that phenomenon--and servicing and production are counterbalancing," says Wissinger.

Wissinger, a 22-year veteran of the mortgage industry and a 16-year Norwest employee, was promoted in January to his new titles after holding down the office of group managing director, sales and operations.

As Norwest Mortgage, the company laid claim to some important chart-topping positions. According to Norwest numbers, the company was the No. 1 retail mortgage originator, No. 1 construction lender, No. 2 originator of FHA/VA loans, No. 1 lender to minorities, No. 1 lender to low- and moderate-income homebuyers and No. 2 lender in correspondent business.

Despite all that, even Wissinger admits that Norwest--or anyone else, for that matter--didn't really dominate the mortgage industry. "Nobody," he iterates, "has even a double digit percent of the market." Due to the Wells Fargo merger, however, Wissinger believes his Wells Fargo Home Mortgage can make a serious run at being one of the eventual dominating companies.

It's not that Wells Fargo brought a lot to the mortgage business in the merger. In fact, Wells Fargo did not have a mortgage presence, so to speak. In busy years like 1998, it was difficult for banks such as Wells Fargo because they were not able to refer customers to a mortgage source. This merger solved that problem for the company.

From the Wells Fargo Home Mortgage point of view, there is nothing but upside from the merger, because it can now leverage the Wells Fargo name and presence in new markets. Almost since the merger was signed, the old Norwest Mortgage team has been engaged with its old Wells Fargo counterparts to figure out how to penetrate the existing Wells Fargo customer base--including putting mortgage reps in bank lobbies.

What the company learned in the old Norwest Mortgage days was that "our mortgage share of the market over time matches the bank share of the market," says Wissinger. For example, in Minneapolis, where Norwest had its corporate headquarters, the bank owned about 20 percent of the market, and mortgage share of the same market was approaching that percentage. Those kind of numbers are important because Wells Fargo was a very strong player in a number of Western markets, in particular California. "We can double or triple our volume in a number of states," says Wissinger. "In California alone, we can probably increase our production by something like $5 billion or $6 billion."