Wells Fargo Creates SWAT Team to Keep Loans In-House
Wells Fargo, the largest U.S. home lender, has assigned about 400 underwriters to originate mortgages for the bank to hold, with as many as 40 percent of those loans likely to fall outside government guidelines taking effect this week.
The bank is training the group as a way to increase lending without losing control of quality, according to Brad Blackwell, head of portfolio lending for the San Francisco-based lender. The group will review loans including those with terms that prevent them from qualifying for protections provided by the Consumer Financial Protection Bureau, or CFPB, under new rules, he said.
Wells Fargo, responsible for about one in five U.S. mortgages last year, is pushing the initiative to compete for clients seeking non-conventional loans such as those with interest-only payments. That segment will be increasingly sought-after at a time when rising interest rates are curbing borrowing demand and banks are facing the biggest regulatory overhaul since the Great Depression.
"As rates continue to rise and refinancing volume continues to contract, lenders are going to be looking for a way to keep their staffs busy," said Erin Lantz, director of mortgages at Zillow Inc.
Congress directed the CFPB, formed as part of the 2010 Dodd-Frank Act, to create the qualified mortgage rule after banks were blamed for helping spark the 2008 credit crisis by giving mortgages to people who couldn't afford them. The regulations provide a measure of legal protection to banks that meet guidelines and expose them to legal liabilities if the loans charge high fees or require total debt payments exceeding 43 percent of the borrower's income.
"What you see happening on Jan. 10 is the most sweeping re-regulation of mortgage finance that I've seen," said Pete Mills, senior vice president of residential policy at the Mortgage Bankers Association, whose home loan career started in 1983.
Unlike the loose lending practices of the last decade, most lenders now approve borrowers only after fully documenting their incomes and assets. At a time when government-backed loans account for 90 percent of the market, non-qualified mortgages can't be insured by the Federal Housing Administration or sold to Fannie Mae or Freddie Mac, the government-controlled enterprises that package home loans into bonds.
Wells Fargo wants to give its clients more loans that can't be sold to the government-backed firms. The bank is confident the new underwriting group, which will make both qualified and non-qualified mortgages, will allow it to originate debt that doesn't meet the CFPB's safe harbor, said Blackwell. Non-qualified mortgages could be between 25 percent to 40 percent of the bank's total nonconforming loans, or about 5 percent of all mortgages, he said. Nonconforming loans are those that can't be sold to Fannie Mae or Freddie Mac.
The approach represents a change for the bank, which long made loans with the intention of selling them all.
"In the early days of our history, we were a mortgage bank: our primary responsibility was to originate and sell," Blackwell said. "Today we are originating for our portfolio. These are loans that we will hold for their lifetime."