People were talking about the possible effect on the market we can expect as a result of the upcoming elections and the preparations the industry can take in anticipation of it.
A major topic at the conference was the announcement that yet another entity was being targeted for originating faulty FHA loans.
The mortgage servicing rights for Ginnie Mae (FHA/VA Servicing) liquidity has been a huge concern for mortgage bankers. Some of the larger and money center banks are purposely de-emphasing government lending.
Prehaps partially in response to that, Wells Fargo is introducing a low-down-payment mortgage to serve as an alternative to Federal Housing Administration loans for low- to moderate-income borrowers and first-time homebuyers.
The “yourFirst Mortgage” was developed in partnership with Fannie Mae and is modeled after the low-down-payment offerings the government-sponsored enterprises introduced with limited success last year. However, the criteria for qualifying are much simpler — addressing a key disadvantage of such programs. Blackwell of Wells Fargo estimated that Wells, the nation’s largest mortgage lender, originated only 200 of Fannie’s HomeReady loans during the first quarter. The new program’s volume should be a lot bigger.
“We’re not interested in doing a handful of loans. We’re interested in making a big impact on the first-time homebuyer market by creating a better alternative for customers,” he said.
Some of that expected increase in volume will come at the expense of Wells Fargo’s FHA production at a time when many lenders are scaling back their involvement in the government mortgage insurance program amid concerns that lenders are being unfairly targeted by the Department of Justice for violations of the False Claims Act.
The GSEs’ initial foray into 97% loan-to-value mortgages last year was met with great fanfare but found few takers, due in large part to the programs’ strict eligibility requirements. In response, Fannie’s HomeReady and Freddie’s Home Possible created “enhanced” low down payment programs designed to be easier to qualify for, but reserved for low-income borrowers or those purchasing homes in Census Bureau tracts with higher concentrations of minority populations.
Wells’ will not restrict eligibility for the new product with the maximum income threshold and high minority Census tract location requirements that have stymied HomeReady. Nor will it require consumers to complete a homebuyer education course to qualify for the loan. Instead, those who take such a course will get a discount on the loan rate.
“We changed the entire positioning of homebuyer education from an impediment and a reason you can’t get a loan to an incentive,” said Blackwell.
Features of the Wells Fargo program that mirror Fannie’s HomeReady product include a minimum 620 credit score, expanded credit history reviews that include nontraditional sources like tuition and utility bill payments and consideration of income from relatives or renters who will live in the home with the borrower.
The Wells program requires a down payment of 3% to 9.99%. It will replace three separate GSE low down payment mortgage options Wells offered. Those who take it before closing will receive a 0.125% interest rate reduction for the life of the loan. On a typical $200,000 purchase transaction, that equates to about $15 per month. To quantify the savings for borrowers who take the new Wells loan instead of an FHA loan, Blackwell gave the example of a $200,000 home purchase.
An FHA loan would require a $7,000 down payment and an initial loan amount of $196,400 after rolling in the upfront mortgage insurance premium of $3,400. With the new Wells Fargo program, the borrower makes a $6,000 down payment and has an initial loan balance of just $194,000.
“You basically save $3,400 right off the bat and your mortgage payments are typically going to be quite a bit lower,” said Blackwell. “For someone with a 700 credit score, it would be about $70 less per month.”
These new products along with the continuing fear of being the target of regulatory action are expected to result in significant changes in the year to come.