Wells Fargo sells most of its commercial mortgage business, striving to reduce the size of its housing loans

According to the financial news app Zhitong Finance, Wells Fargo (WFC.US), a giant on Wall Street, announced on Tuesday that it has agreed to sell a portion of its non-agency third-party commercial mortgage servicing business in its commercial mortgage servicing business to commercial real estate loan servicer Trimont LLC. The banking giant did not provide specific terms of the transaction, but it is expected to be completed in early 2025.

This sale reflects an important strategic move by Wells Fargo last year to gradually reduce its residential mortgage servicing business. Kara McShane, Executive Vice President and Head of Commercial Real Estate at Wells Fargo, stated: "This transaction aligns with Wells Fargo's strategy to focus on critical businesses for our consumer and corporate clients." She noted that the bank remains committed to providing housing mortgage services that customers need.

Earlier this month, a document submitted by Wells Fargo showed that as of June 30, 2024, the fourth largest bank in the United States provided commercial mortgage services worth as much as $54.3 billion to other corporate clients. The bank will continue to provide services for third-party institutions and government-supported commercial loans for a period of time.

In a recent report to clients, the well-known Wall Street investment firm J.P. Morgan wrote that the Fed's interest rate cut cycle may have a greater negative impact on large commercial banks as they are more sensitive to the asset side, while regional banks are more neutral to short-term, policy-sensitive rates.

The J.P. Morgan analysis team stated that the recent downward trend in U.S. Treasury yields, mainly due to softening macroeconomic prospects, may indicate a poor overall outlook for Net Interest Income (NII) in the banking industry from the second half of 2024 to 2025.

Housing loans have been sluggish since the Fed's current rate hike cycle, leading to a decline in net interest income. With the rate cut cycle underway, the Fed's benchmark interest rate may remain relatively high from a historical perspective until 2025, indicating that the real estate industry may have difficulty recovering in the medium term. This is also the logic behind Wells Fargo's gradual reduction of its residential mortgage business.

Even if the Fed gradually lowers interest rates before 2025, the benchmark interest rate may still be at a relatively high level - possibly far higher than pre-pandemic levels. This will continue to put pressure on the recovery of the real estate market. With rates potentially staying high for an extended period, the real estate market may struggle to see a strong rebound in the medium term, as homebuyers and real estate investors typically remain cautious in a high-rate environment, creating long-term pressure on overall housing loan growth and net interest income for the banking industry.

On Wall Street, Bank of America's NII has clearly entered a downward trajectory since the first quarter, with the bank's management attributing this to "rising financing costs and deposit rotation seeking higher-yielding alternatives." Wells Fargo's net income also saw a decline on a month-on-month basis, but the company's CEO Charlie Scharf stated that the growth in non-interest income fully offset this decline