Wells chief warns on mortgage lending
The chief executive of Wells Fargo has warned that the biggest US mortgage provider will avoid providing home loans to people with lower credit scores unless federal authorities reduce the threat that the banks will bear the costs for soured loans.
The US is still picking over the wreckage of the financial crisis, where some mortgage originators wilfully ignored underwriting standards to sell as many loans as possible to government-backed institutions and private investors.
Alongside record penalties for banks that acknowledged wrongdoing, which continue today, officials have demanded more rigorous underwriting and tightened lending criteria. But there is a growing body of opinion, among some officials not just bankers, that credit in the market has become too tight.
“Banks, at this point, are reluctant to lend to borrowers with lower FICO [credit] scores,” Janet Yellen, Federal Reserve chairwoman, said in June. “They mention in meetings with us consistently their concerns about put-back risk, and I think they are – it is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage.”
Jamie Dimon, chief executive of JPMorgan Chase, said last month: “We want to help consumers there, but we can’t do it at great risk to JPMorgan, so until they come up with some kind of safe harbours or something, we’re going to be very very cautious in that line of business.”
Mortgage lending has dropped in the US as a refinance boom ended, while lending for new purchases has been slow to pick up. At Wells Fargo, mortgage banking revenue fell 39 per cent to $1.7bn in the second quarter from $2.8bn a year earlier, while mortgage originations of $47bn were down 58 per cent.
Source: ft
