GO
Loading...

Enter multiple symbols separated by commas

Wells Fargo Backs Tighter Mortgage Rules

Wells Fargo has broken with other big banks by urging US regulators to require mortgage lenders to retain more of the loans they originate, rather than selling them to investors, a practice that helped to fuel the housing bubble.

wells_fargo_front_AP.jpg
AP

The move by Wells , the fourth-biggest US bank by assets, represents a rare instance of division among financial groups as they try to soften new rules aimed at curtailing abusive lending practices.

Regulators are now deciding which mortgages will be exempt from a provision in the Dodd-Frank reform act which requires banks to retain 5 percent of the credit risk on home loans they originate.

That so-called 5 percent rule will not apply to mortgages that meet stringent underwriting guidelines. Officials are expected to provide guidance on exemptions by January.

“The point we are making, unlike others, is that risk retention is a good idea,” said John Gibbons, an executive vice president with Wells Fargo Home Mortgage.

“Rather than being something rare or unusual, it should be common in the mortgage industry to align interests of lenders, borrowers and investors.”

In a letter to regulators last month, Wells Fargo argued most mortgages should be retained . One possible exception would be loans in which borrowers have made downpayments of 30 percent or more.

Some lenders suggested such a rule would give big banks an advantage over small banks since they underwrite more “jumbo” loans in which borrowers tend to make larger down payments.

Other lenders have argued banks have already tightened standards sufficiently.

“We believe regulatory and industry changes over the past several years have increased the quality of loans ...?and these loans are much more conservatively underwritten than those made in the time period of 2002-2008,” said US Bank Home Mortgage, SunTrust Mortgage and Quicken Loans, which claim to represent 15 percent of all US mortgages being underwritten.

Ron Phipps, president of the National Association of Realtors, warned in a separate letter that broad risk retention would increase the cost of borrowing for consumers.

Bob Davis, an executive vice president with the American Bankers Association, told the Financial Times that wide-ranging risk retention “simply is not necessary for the plain-vanilla types of lending being done today”.

Mr Gibbons of Wells Fargo countered that “‘Oh, we’ve learned our lesson’ is what you always hear at this point in the credit cycle”.

He added: “If we want to discourage the type of ‘hit and run’ lending that got us into trouble in the future, we need to change the way the industry operates.”

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

  • Why women cheat?

    Is cheating bad? Why do women cheat? The founder and CEO of affair website Ashley Madison tells all, including why he has his eye on China.

  • Judge's gavel

    The Financial Industry Regulatory Authority disciplined several financial services firms and individuals in May 2015.

  • Fine wines & finance

    Why you should try something a little different on date night. Bring the romance and champagne, and a calculator too. Every once in a while have a date to talk money and finance, and keep an important part of your relationship on track. Reporter Sharon Epperson talks to a couple who does just that.

U.S. Video

  • Cramer: Here's a sign the market could rally

    Wall Street's been soaking in red, but "Mad Money" host Jim Cramer has one signal to watch for that could point to another run.

  • Burger war maneuvers

    Cramer looks at the number of company's selling burgers and tries to determine the quality names, as well as those to avoid.

  • Cramer: What's driving defense?

    Cramer says that even though President Obama has made it clear the US can no longer be the world's policeman, the country can become the world's arms dealer. Profiting from defense spending.