Nonprime borrowers have become a higher priority for Wells Fargo & Co.'s home loan unit, which sees lending to them as a way to increase market share during a downturn, one of its top executives said.
"We see a huge opportunity for Wells Fargo to play in that segment in a very fair and responsible way," said Cara Heiden, a co-head of Wells Fargo Home Mortgage. In each origination channel, it is "very focused" on "the less-than-perfect credit or the not-well-established credit segment."
Last week her unit announced it would introduce a "Steps to Success" package of education, tools, and banking products this year to help nonprime mortgage customers improve their finances.
In an interview last week, Ms. Heiden also discussed Wells' growth plans, minority strategies, and one of its more unusual products, a first-lien home equity line. And she made it sound like Wells was seriously considering offering option adjustable-rate mortgages.
Wells, the country's No. 2 home lender, has been one of the few major lenders not to offer these highly profitable and controversial negative amortization ARMs. It also has made a point of regularly mentioning that fact and citing the product's risks. (Countrywide Financial Corp., the top home lender, has had no qualms about offering option ARMs; they made up about 18% of its production in April.)
Ms. Heiden called option ARMs an "excellent product" for certain consumers, since they offer "wonderful flexibility." However, "the big question is, how do you ensure you're originating the product for that consumer who can, in fact, manage the credit?"
She would not assess the chances that Wells would start offering option ARMs soon. However, judging from her comments, the company has clearly put a good deal of thought into things like the appropriate disclosures; she said they should include information on what might happen in various scenarios, including different levels of appreciation.
(Wachovia Corp., whose executives expressed similar concerns about option ARMs in the past, recently did an about-face by agreeing to buy Golden West Financial Corp., one of the oldest and biggest players in option ARMs.)
So-called emerging market customers - minorities, immigrants, and low- and moderate-income individuals - were a major theme of a conference Wells held last week in Washington to celebrate National Homeownership Month. At the conference, where Ms. Heiden spoke to American Banker, Wells announced its plans for the "Steps to Success" program.
During a presentation at the conference, Ms. Heiden also briefly mentioned that Wells wanted to lend more to credit-challenged borrowers. That would certainly bring a variety of risks. Subprime mortgage margins have withered in the past two years, and Wells Fargo Financial, the San Francisco banking company's consumer finance business, has faced charges of predatory nonprime lending for years from consumer groups.
Mr. Heiden said in the interview that Wells sees minorities, who are "still underserved," as a related area of opportunity. Her company will add about 40 home loan offices in "ethnically diverse communities" this year - about the same amount as last year - and is trying to increase the "ethnic diversity in our sales force."
Wells is trying to reach these borrowers by allowing low down payments, considering nontraditional credit information, offering other forgiving terms, and trying to understand cultural differences, she said.
For instance, the company's research has found that Asian-Americans want a lender to be a "facilitator," Hispanics seek a "translator," and African-Americans want an "advocate," she said. (On the product front, Wells' program of offering loans to immigrants who use individual taxpayer identification numbers to verify their identities has brought it some flack from anti-immigrant groups.)
The "Steps to Success" program will include access to a bilingual financial literacy program Wells already offers, credit reports and credit counseling, and banking products that it says will "encourage solid, automatic money management."
Part of the idea is to create a customer it can serve again later with better loans, Ms. Heiden said. Many of the details have not been finalized.
The program has elements of the philosophy of David Bach, the best-selling personal finance author, who teamed up with Wells on "The Great American Homeowner Challenge," a financial literacy campaign "designed to inspire 10 million Americans to buy a first, second, or investment home." Wells and Mr. Bach, an Oprah Winfrey-approved "money coach," who spoke at the conference last week, have made joint presentations across the country in recent months.
Ms. Heiden, the mortgage unit's division president of national consumer and institutional lending, said Wells will expand the sales force in all three major home lending channels, and it is not de-emphasizing any of them.
It expects to maintain its traditional 50-50 split between retail and wholesale/correspondent, though the ratio "will fluctuate from time to time" as a result of "opportunities in the marketplace." Last quarter third-party originations rose to about 60% of Wells' total.
In retail, it will expand into new markets in "all 50 states," she said. Correspondent lending - a business that Washington Mutual Inc. (the No. 3 home lender) recently exited, but one that has been a growing part of Wells' mix - is a good way to build the servicing portfolio and add customer relationships, she said.
"We'll grow market share every year," Ms. Heiden said.
When asked if her company was aiming as high as Countrywide, which wants to control 30% of the market by 2010, she would only say, "We're going for it just like they are."
When asked why Wells' Home Mortgage Asset Management Account, a first-lien mortgage that can be drawn and repaid like a home equity line of credit, is not as risky as option ARMs, she said the line's available credit can increase only as borrowers pay down their loan or their home's value increases.
"It's controlled neg am," she said. "It's not neg am built into the product at the point of sale."
Wells is originating a "significant amount" of these lines, she said without elaborating.
When asked if Wells marketed the product as something borrowers could use as their sole bank account - an interest-saving strategy popular in Australia and, in a different form, Britain, and one starting to gain some traction here - Ms. Heiden said her company was aware of such programs.
The product could be used that way, because it offers easy, card-based access to the equity, but Wells is not pushing it that way, she said. However, doing so at some point in the future is a "possibility."
