WaFd is the latest bank to exit mortgage lending

WaFd Inc., the parent company of Washington Federal Bank, is the latest depository to exit mortgage lending, citing impacts from the business' commoditization and technology, as well as the regulatory burden, in its decision.

The Seattle-based bank, which was a portfolio lender, made the announcement in its 2025 first fiscal-quarter earnings release as well as in a LinkedIn post from Brent Beardall, president and CEO of WaFd.

"Today I/we made the very difficult decision to exit mortgage loan originations after more than 100 years," Beardall said in the Jan. 16 LinkedIn posting. "The impact is real on the approximately 8% of our team that will be released."

The bank plans to close most of the loans that are already in its pipeline by mid-March, a statement on its website said.

Last week, Ally Financial announced its decision to get out of residential mortgage lending. New York Community Bancorp significantly reduced Flagstar's mortgage footprint with the sale of the third party originations business (along with other assets such as mortgage servicing rights) to Mr. Cooper; that company just flipped the TPO operation to A&D Mortgage.

WaFd recorded net income of $47.3 million in the first fiscal quarter, compared with $61.1 million three months prior and $58.5 million one year ago.

For the period that ended Dec. 31, 2024, WaFd originated $156.1 million of residential mortgages. This compared with $138.2 million for the fourth fiscal quarter of 2024; for the full fiscal year, which ended on Sept. 30, 2024, it was $430.3 million.

It produced $83.5 million for the first fiscal quarter of 2024.

Because of the decision to exit residential mortgages, the bank had to take restructuring expenses of $5.4 million this quarter. "As a result, by the end of June 2025, we anticipate annual expense savings of approximately $17 million," Beardall said in the press release.

The commoditization Beardall cited was that 70% of all mortgages are sold to Fannie Mae and Freddie Mac, "which has caused profitability to decrease and credit risk to increase."

Meanwhile, the technology part of his argument is similar to the competitive aspect behind commoditization, namely that it has made it easier for consumers to refinance — which is not a bad thing for homeowners, but increases the interest rate for risk banks that portfolio their mortgages.

Beardall described the regulatory environment as a "contributing factor" to his decision.

WaFd received a "needs to improve" Community Reinvestment Act rating because it did not make enough loans to low- and moderate-income borrowers and communities, he said.

"Today, we compete against government-sponsored financing programs with less stringent underwriting than we are comfortable offering as a lender that retains all loans on our balance sheet," Beardall said. "For example, there are multiple government programs that require no down payment, and our performance is being compared to lenders who offer these programs and originate to sell."

In 2020, Washington Federal was fined $200,000 by the Consumer Financial Protection Bureau for errors in Home Mortgage Disclosure Act reporting.

WaFd disagrees with and plans to appeal the CRA ranking. Going forward, it will focus on business banking and commercial real estate lending. Furthermore, WaFd is becoming a Small Business Administration lender.

Last February, WaFd acquired Luther Burbank of Santa Rosa, California.

"Our aim is to always offer products and services to our customers where WaFd Bank can add value, and we have concluded that we no longer do so in the mortgage sector," Beardall said.

The bank will be retaining all of its existing mortgages and home equity lines of credit on its books.