“To me, this new mortgage program is further proof that Wells Fargo’s management and board admitted to acts in its recent DOJ/FHA mortgage settlement that they did not and do not believe are true. How so? If they believed their admissions, they would repair their ways, rebuild their relationship with FHA, and continue to do business with FHA and not initiate the loan program below, which undercuts FHA and the need for its mortgages…
…Right? Some might rightly view Wells Fargo’s DOJ/FHA settlement as selling the bank’s long-term reputation and shareholders down the road, so the current management could “get this behind them.” The BofA/Countrywide Second Circuit Court of Appeals ruling this week, makes Wells’ settlement look like a bad decision. In fact, The Wall Street Journal Editorial Board, commenting this week on the BofA/Countrywide ruling said the following: “The bank’s victory makes us wish other banks had been willing to fight the federal extortion in court rather than roll over to appease political demands for headlines.” Quicken Loans has courageously and rightly decided to fight the DOJ’s bogus FHA claims against them and I think the odds are in their favor to win their case.”, Mike Perry, former Chairman and CEO, IndyMac Bank
May 26, 2016, Joe Light and AnnaMaria Andriotis, The Wall Street Journal
Wells Fargo to Offer Low-Down-Payment Mortgages Without FHA Backing
Wells Fargo & Co. is rolling out a new mortgage for borrowers making minimal down payments, an offering that could allow the bank to step back significantly from a controversial Federal Housing Administration program
Wells Fargo made $6.3 billion in FHA-backed loans last year. PHOTO: RICHARD B. LEVINE/ZUMA PRESS
By Joe Light and AnnaMaria Andriotis
Wells Fargo & Co. is rolling out a new mortgage for borrowers making minimal down payments, an offering that could allow the bank to step back significantly from a controversial Federal Housing Administration program.
The move comes as most of the country’s main banks exit from any substantial role making loans guaranteed by the FHA. The agency insures mortgages made to buyers who would otherwise have a hard time getting loans, but it has been shunned by banks following a wave of lawsuits by the Justice Department that alleged poor underwriting.
Wells Fargo, which made $6.3 billion in FHA-backed loans last year, is the only mainstream bank in the FHA’s top 20 originators, according to trade publication Inside Mortgage Finance.
The bank’s new mortgage allows borrowerswith credit scoresas low as 620 on a scale of 300 to 850to make down payments of as little as 3%, while also allowing them to use income from family members or renters to qualify. The requirements don’t represent a significant expansion of mortgage access, but will allow Wells Fargo to make more loans to low- and middle-income borrowers without going through theFHA.
The bank’s new program, which was launched through a partnership with mortgage-finance giant Fannie Mae, could replace about of half the bank’s current FHA volume and increase its market share, a person familiar with the matter said.
In April, Wells Fargo and the government wrapped up a $1.2 billion settlement in which the lender admitted it submitted ineligibleloans for FHA backing and failed to notify the government when it became aware of the problems. With the settlement, Wells Fargo joined J.P. Morgan Chase & Co., Bank of America Corp., SunTrust Banks Inc. and many other lenders that have been penalized or threatened with penalties for FHA-related problems.
Some executives have said the penalties are too harsh for what they describe as minor errors, while government lawyers have said they have been appropriately high and that some lenders’ actions amounted to fraud.
Wells Fargo, like other banks, has scaled back on FHA-backed mortgage lending in recent years. The bank’s loans accounted for just 2.5% of total FHA mortgage dollars originated in 2015, down from 9% in 2013 and 13% in 2010, according to Inside Mortgage Finance.
Banks including J.P. Morgan and Bank of America were in the top 20 lenders under the program as recently as 2014, before they curtailed their participation. Nonbank lenders have rushed in to fill the void.
Bank of America in February unveiled a new low-down-payment mortgage of its own without FHA backing. The Self-Help Ventures Fund, a Durham, N.C.-based nonprofit, agreed to absorb some losses in the event a borrower defaults, to reduce the cost of that product. Self-Help said the Bank of America product is on pace to make between $300 million and $500 million in mortgages within the first year.
Self-Help, which comprises a state and a federally chartered credit union as well as the ventures loan fund and has a total of $1.6 billion in assets, also teamed up with Wells Fargo to take on the risk of a borrower defaulting on some mortgages in its program.
The new Wells Fargo product might save money for some borrowers who would have otherwise taken out an FHA-backed loan. For example, a borrower who buys a $200,000 home and has a credit score of 715 would pay about $1,040 a month with an FHA loan from Wells Fargo, assuming the borrower includes the FHA program’s upfront costs in the loan amount and makes a 3.5% down payment, the minimum the agency requires. The same borrower under the new program would pay about $994 a month with a 3% down payment.
By taking a housing-education course, the borrower could reduce the mortgage rate by an additional one-eighth of a percentage point, making the payment about $979 a month.
The FHA in recent months has attempted to clarify lenders’ responsibilities in making FHA-backed loans to keep them from withdrawing from the program, but many lenders believe the program’s legal risk is still too high.
“There’s clearly a disincentive to use the FHA for first-time home buyers in the way it’s been done in the past,” said David Stevens, CEO of the Mortgage Bankers Association, a lender trade group.
An FHA spokesman in an email said, “We believe our efforts to clarify policies and streamline processes are helpful for lenders looking to do business with FHA and serve a critical part of the home buying population.”
Fannie Mae and competitor Freddie Mac have backed loans with down payments of as little as 3% for more than a year, though the programs’ volume is still small. In the past five quarters, Fannie has backed about 30,000 mortgages with down payments of less than 5%, which is about 1% of its business.
Fannie Mae Vice President of Product Development Jonathan Lawless said programs similar to Wells Fargo’s could be developed by other lenders and that he expects the volume of low-down-payment mortgages that Fannie backs to grow.