Although Wells Fargo ended 2016 playing damage control from the fallout
of its enormous false accounts scheme while attempting to restore its
blemished public image, the bank still managed to increase its mortgage
transactions over the past year significantly.
Wells Fargo’s released its year-end report on March 16, indicating
that the national bank’s overall mortgage origination volume for
2016 was $249 billion—up from $213 billion in 2015 and $175 billion
in 2014. Additionally, Wells Fargo also saw a corresponding increase in
total mortgage applications—rising from $262 billion in 2014 and
$311 billion in 2015 to a substantial $347 billion in 2016.
While the application volume certainly contributed to Wells Fargo’s
$36 billion jump in mortgage originations, it was not the only variable
at play. A closer look at the bank’s mortgage dealings indicates
that they have denied fewer applications and approved more loans over
at least the two preceding years, with mortgage approval rates steadily
rising from 66.8% in 2014 to 71.8% in 2016.
One might suspect Wells Fargo is just lowering its credit standards to
grant more loans. However, its annual report shows otherwise, claiming
the bank consistently monitors credit quality, delinquency, updated FICO
scores and LTV/CLTV values across its entire real estate mortgage loan
portfolio. The report noted that these credit risk markers, which do not
include government guaranteed loans, improved in 2016.
The credit risk improvement was made clear by the recently disclosed Wells
Fargo data, which revealed:
- Mortgages over 30-days delinquent at the close of 2016, comprised $5.9
billion—2% of total
non-PCI mortgages—compared to $8.3 billion at the close of 2015.
- Loans that had FICO scores below 640 equaled $16.6 billion, or 5% of all
non-PCI mortgages at the end of
2016. That is a decrease from $21.1 billion, or 7%, from the end of 2015.
- Mortgages with a LTV/CLTV exceeding 100% amounted to $8.9 billion at year end 2016,
or 3% of all non-PCI mortgages, down from $15.1 billion, or 5%, at year end 2015.
Wells Fargo distinguishes PCI mortgages from non-PCI loans as such: PCI
mortgages are those purchased with signs of credit degradation since the
time of origination and where it is likely the bank will not receive all
principal and interest fees due; whereas non-PCI loans are acquired with
no evidence of impaired credit. The bank claims the significant majority
of all of its PCI loans came from transferred Wachovia accounts, which
Wells Fargo acquired in 2008.
Wells Fargo’s mortgage business boom cannot be attributed to an inundation
of low down payment loans either. Wells Fargo rolled out a new program
dubbed “yourFirstMortgage,” which offers loans with down payments
as low as 3 percent of the total loan amount. This new program resulted
in $3.9 billion in mortgage financing or 1.6% of Wells Fargo’s 2016
The report noted that the credit performance related to Wells Fargo’s
real estate 1-4 family first lien mortgages fell to 0.03% in 2016, an
improvement from 0.10% in 2015. Nonaccrual loans stood at $5 billion at
the close of 2016, compared to $7.3 billion for 2015.
According to Wells Fargo, a healthier housing market led to its improved
mortgage credit performance, with post-2008 originations resulting in
minimalized losses and contributing to approximately 73% of the bank’s
2016 overall real estate 1-4 family first lien mortgages.
Wells Fargo’s review of the Home Mortgage Disclosure Act led to its
claim that over the past six years the bank has originated more home mortgages
across all key demographics and low-income borrowers than any other U.S.
financial institution—a trend it plans to continue into the future.
Additionally, Wells Fargo intends to collaborate with the National Urban
League, the National Association of Real Estate Brokers, and similar organizations
to solve the problem of falling African American homeownership numbers.
The national bank will implement a $60 billion lending initiative for
up to 250,000 new homeowners, with $15 million of which will be directed
towards financial education and counseling programs over the next decade.
Wells Fargo announced its corporate objective for the next five years is
to originate $150 billion in minority-destined mortgages and $70 billion
in low-income loans.
Bryan Redington directly for more information.