Exclusive: Wells Fargo loosens standards for jumbo mortgages
By Peter Rudegeair
NEW YORK (Reuters) - Wells Fargo & Co (WFC.N: Quote) has relaxed its standards for loans for some high-priced homes as the largest U.S. mortgage lender tries to combat an industry-wide drop in mortgage volumes.
The bank has eased its lending standards on mortgages it acquires from other banks, said spokesman Tom Goyda, for "jumbo" loans that are too large to receive a guarantee from government-backed mortgage companies.
In late July, the San Francisco-based bank lowered the minimum credit score on these fixed-rate jumbo mortgages to 700 from 720, Goyda said. Credit scores range from 300 to 850, and levels below 640 are often considered subprime.
The lower requirements for jumbo loans are the latest effort by Wells and other banks to loosen mortgage criteria that are still tight by historical standards. Of the large banks surveyed by the Federal Reserve in July, thirty-nine percent said they were somewhat relaxing requirements on prime residential mortgages, and all banks reported that demand for prime mortgages was at its highest level in a year.
The mortgage industry is seeking to replace lost revenue after a spike in mortgage rates in the second half of 2013 made refinancing less attractive.
But for many lenders the search for revenue is tempered by the fact that the housing market is still recovering from the worst crisis since the Great Depression. New rules and regulations designed to prevent the next mortgage implosion have also made some banks less willing to take risk in the market.
In June, Federal Reserve Chair Janet Yellen said, "It is difficult for any homeowner who doesn't have pristine credit these days to get a mortgage. I think that is one of the factors that is causing the housing recovery to be slow."
In addition to lowering minimum credit scores, Wells Fargo is now willing to buy jumbo loans from other lenders that go toward the purchase of a second home, Goyda said. For a refinancing, the bank is now willing to buy mortgages whose balance exceeds the size of the borrower's previous loan, known as "cash-out refinancing." Continued...