That's the question some regulators are asking as its control of the market reaches 33 percent.
Wells Fargo & Co.'s grip on the U.S. mortgage market has tripped alarms among regulators and lawmakers concerned that the bank's control over one of every three new loans could hurt consumers and undermine markets.
Wells Fargo and its two largest rivals, JPMorgan Chase & Co. and U.S. Bancorp, made half of all U.S. home loans in the first half, according to Inside Mortgage Finance, an industry publication. Wells Fargo alone controlled 33.1 percent. In mortgage servicing, which involves billing and collections, four firms have 50 percent of the business, and Wells Fargo is No. 1 in that field, too, with 18.5 percent.
Wells Fargo and Minneapolis-based U.S. Bancorp are the two dominant banks in the Twin Cities market.
The concentration in the mortgage business has drawn warnings from the inspector general for Fannie Mae and Freddie Mac, the head of Ginnie Mae, Fitch Ratings, and congressmen, including one from Wells Fargo's home state, about growing risks to borrowers, taxpayers, investors, housing markets and the financial system. Scenarios include a setback or strategy shift at Wells Fargo that could choke off credit for homebuyers and compel the U.S. to again pump in money to keep the housing market from seizing up.
"A concentration of issuers creates an oligopoly," said Bill Frey, head of Greenwich Financial Services in Greenwich, Conn., whose firm invests in, creates and trades mortgage bonds and advises bondholders. The result will be "higher mortgage costs for generations, as well as slower economic growth. Housing is the keystone of our economy."
As recently as the 1990s, a company with 7 percent market share would have been considered a large player in a market that was broadly distributed among savings and loans, community banks, credit unions, mortgage brokers and commercial banks, according to David Stevens, chief executive officer at the Mortgage Bankers Association and a former official in the U.S. Department of Housing and Urban Development.
San Francisco-based Wells Fargo, led by Chief Executive John Stumpf, controlled 15 percent of the market in 2007, before the financial crisis triggered by falling home prices and souring mortgages hobbled rivals such as Bank of America and Citigroup.
"The nation benefits from a broadly distributed mortgage finance system," said Stevens, whose organization represents more than 2,400 firms involved in housing.
Officials aren't suggesting that Wells Fargo did anything improper to emerge as the biggest player in mortgages, or that the bank, ranked fourth by assets in the U.S., is putting its own soundness at risk.
Instead, as they seek to avoid another financial crisis, regulators' focus is on what might happen if Wells Fargo's enthusiasm wanes for housing, which comprised almost a fifth of the U.S. economy in more prosperous years. Last month, the bank said it will stop funding loans originated and sold by independent mortgage brokers.
"The home lending business is a key part of Wells Fargo's strategic vision for the future," Vickee Adams, a bank spokeswoman, said in an e-mailed statement. "We have always taken a longer-term view of the home lending business and we have succeeded by lending responsibly to customers, one at a time."
Adams said the lender should be judged by its share of the retail channel, 16.3 percent in the first quarter, rather than the entire business, which also involves buying loans from small and medium-sized lenders.
In January, sales managers in the San Francisco Bay Area dressed as cowboys to urge retail loan officers to reach for 40 percent of the new-home purchase market, according to two attendees who asked that their names not be used.
Concern at Fannie, Freddie
Edward J. DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has said he's concerned about concentration and urged officials in a May speech to consider changes. Freddie Mac -- with Fannie Mae, the recipients of nearly $190 billion in government aid -- bought 82 percent of the single-family loans it purchased in 2011 from 10 firms, filings show, with 40 percent from Wells Fargo and JPMorgan.
Fannie Mae and Freddie Mac rely on Wells Fargo and other large servicers to collect payments for the loans they guarantee. That makes them vulnerable to the business practices and financial health of a few large banks, said Steve A. Linick, the Federal Housing Finance Agency's inspector general. The top 10 serviced 75 percent of single-family mortgages guaranteed by Fannie Mae, according to company filings.
"A limited number of servicers poses a safety and soundness risk to the enterprises," Linick said in a phone interview. This "ultimately could cause losses to taxpayers."
Amy Bonitatibus, a spokeswoman at New York-based JPMorgan, declined to comment, as did Tom Joyce at Minneapolis-based U.S. Bancorp. JPMorgan ranks first by assets in the U.S. among commercial lenders, and U.S. Bancorp is fifth.
Wells Fargo's leading market share isn't likely to draw the ire of antitrust monitors, at least not yet, according to Makan Delrahim, a former attorney at the Department of Justice's antitrust division. The U.S. doesn't track explicit market-share thresholds, meaning a firm can control 90 percent market share if it gets there by offering better products or services and not by unduly taking advantage of its market position, he said.
Wells Fargo's own health probably isn't at risk, either, according to analysts. The bank's reputation has been burnished by having Warren Buffett's Berkshire Hathaway Inc. as its biggest shareholder, a track record of posting annual profits, and its history of avoiding the industry's worst underwriting practices.