Unlike a number of its competitors that have shut down their third-party production channels, Wells Fargo & Co.'s home mortgage unit says it is committed to the wholesale business.
But it is clear from the lender's words and actions that it is doing business with brokers and correspondents on terms that reflect new market realities.
Cara Heiden, co-president of Wells Fargo Home Mortgage in Des Moines, said in an interview this week that Wells wants to be the "No. 1 partner" of mortgage brokers "who are aligned with our responsible lending principles" — an important qualifier.
"There are customers who prefer to work with brokers, and we will be there for our brokers to work with them to responsibly serve that customer," Ms. Heiden said, mentioning the new disclosure forms that Wells Fargo's brokers are required to present to applicants to clarify loan terms (including the broker's compensation).
Like many lenders, Wells wants to originate more loans that are insured by the Federal Housing Administration. Last week Ms. Heiden touted the FHA as a viable alternative to nonprime lending in a presentation that was simulcast to thousands of real estate agents around the country.
But here, too, Wells is proceeding with caution. Late last month it informed correspondents and brokers that beginning March 31 it would require a minimum credit score of 580 on most of the FHA loans it buys from them. (For cash-out refinancings for more than 85% of a home's value, the minimum score is 600.) Wells also said it would no longer consider nontraditional credit histories when evaluating FHA loans for purchase. These requirements are stricter than the standards of the FHA, which has no minimum score. (However, Wells said the requirements do not apply to loans made under the FHASecure program, which refinances subprime, adjustable-rate loans.)
The bulletin to correspondents and brokers also included a list of 226 counties that Wells considers "at-risk markets." In all these areas it has set lower ceilings on loan-to-value; in some of them it has also discontinued reduced-documentation lending.
Ms. Heiden said in the interview that Wells looks "at home prices and how they are fluctuating … then we will make decisions on loan-to-values in those markets." However, she said, pricing is still determined "property by property, and the underlying collateral evaluation is challenging to paint with the same brush" even within the same metropolitan statistical areas.
Since last year HSBC Holdings PLC's U.S. consumer finance unit, Bank of America Corp., Washington Mutual Inc., and other lenders have shuttered third-party channels. It is unclear what B of A will do with Countrywide Financial Corp.'s sizable wholesale operation after it completes its deal to buy the Calabasas, Calif., lender, which is expected next quarter. A spokesman for B of A did not return calls placed Thursday by press time.
Gabe del Rio, the vice president of lending and homeownership for Community HousingWorks, a San Diego nonprofit housing advocacy group, said the tighter standards Wells is imposing for third-party FHA loans would "shut some people out of that market" — particularly those low-income consumers for whom the FHA program was created to help achieve homeownership. But he said tightening standards "does make some sense" in terms of managing risk, and "I don't blame them for doing it."
Ms. Heiden said Wells works "to offer a product set across the credit segment and across the income segment" that also serves the "ethnically diverse segment" of borrowers.
Terry Wakefield, the chief executive of Wakefield Co., a Grafton, Wis., mortgage consulting firm, said Wells is wisely acting to preserve its approval from the Department of Housing and Urban Development to fund FHA loans, which could be imperiled if a large portion of the lender's FHA production defaulted.
The FHA has received a flurry of approval requests from lenders since February, when President Bush signed the economic stimulus package, which increased the loan limit on FHA loans from $362,000 to $729,750 until yearend. Proposals to extend the loan limit permanently are being considered on Capitol Hill.
By tightening underwriting on FHA loans acquired through third parties, Mr. Wakefield said, Wells could prevent a potential "disaster."
