Wells Fargo’s fake account scandal didn’t dent 2016 mortgage business


Wells Fargo spent much of the latter part of 2016 cleaning up the mess from its massive fake accounts scandal and trying to repair the damage to its reputation, but the bank’s mortgage business certainly didn’t suffer last year.

According to Wells Fargo’s annual report, released Thursday, Wells Fargo’s total mortgage origination volume rose to $249 billion in 2016 from $213 billion in 2015 and $175 billion in 2014.

As one might expect considering that its origination volume increased, Wells Fargo’s application volume increased as well. According to Wells Fargo’s report, it received $347 billion in mortgage applications in 2016, compared with $311 billion in 2015 and $262 billion in 2014.

So part of the increase in origination volume is driven by an increase in applications, but that’s not the only factor driving the $36 billion increase in mortgage originations.

Analysis of Wells Fargo’s mortgage application and origination volume shows that the bank is denying fewer applications and approving more loans, and has done so for at least two straight years.

According to a review of Wells Fargo’s data, the bank converted 66.8% of its applications into originations in 2014. That figure rose to 68.5% approval in 2015, and all the way to an approval rate of 71.8% in 2016.

One conclusion that could be drawn from that increase is that Wells Fargo is relaxing its credit standards to approve more loans, but that doesn’t appear to be the case.

According to Wells Fargo’s report, the bank is constantly the quality of its credit, includes tracking delinquency, current FICO scores and loan/combined loan to collateral values on its entire real estate 1-4 family mortgage loan portfolio.

Wells Fargo notes that these credit risk indicators, which exclude government insured/guaranteed loans, continued to improve in 2016.

Here’s how it all broke down, courtesy of Wells Fargo’s report:

  • Loans 30 days or more delinquent at December 31, 2016, totaled $5.9 billion, or 2% of total non- PCI mortgages, compared with $8.3 billion, or 3%, at 
December 31, 2015.
  • Loans with FICO scores lower than 
640 totaled $16.6 billion, or 5% of total non-PCI mortgages at December 31, 2016, compared with $21.1 billion, or 7%, at December 31, 2015.
  • Mortgages with a LTV/CLTV greater than 100% totaled $8.9 billion at December 31, 2016, or 3% of total non-PCI mortgages, compared with $15.1 billion, or 5%, at December 31, 2015.

“Non-PCI mortgages,” in Wells Fargo’s terminology, are loans that are not “purchased credit-impaired.”

Wells Fargo classifies PCI loans are as “loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments.”

According to Wells Fargo, “substantially all” of its PCI loans were acquired when the bank acquired Wachovia in 2008.

And the increase in Wells Fargo’s business is not driven by a massive influx of low down payment mortgages either.

As HousingWire reported last year, Wells Fargo began offering mortgages with a down payment of as little as 3% in a program called yourFirstMortgage.

Early reports on the yourFirstMortgage program were positive, as the bank noted that it received $1 billion of applications for the yourFirstMortgage program in the program’s first 30 days.

Those results were echoed in the program’s results for all of 2016, as the bank stated in its annual report that “yourFirst Mortgage helped more than 18,000 customers achieve sustainable homeownership” in 2016.

Overall, the program generated more than $3.9 billion in mortgage financing in 2016, which is approximately 1.6% of Wells Fargo’s total originations.

Wells Fargo noted that the credit performance associated with the bank’s real estate 1-4 family first lien mortgage portfolio continued to improve in 2016, as measured by net charge-offs and nonaccrual loans.

According to Wells Fargo, net charge-offs as a percentage of average real estate 1-4 family first lien mortgage loans improved to 0.03% in 2016, compared with 0.10% in 2015. Nonaccrual loans were $5 billion at the end of 2016, compared with $7.3 billion at the end of 2015.

An improving housing environment drove improvement in the credit performance of its mortgages, the bank said. According to the bank, loans originated after 2008 resulted in “minimal losses” to date and represented approximately 73% of the banks total real estate 1-4 family first lien mortgage portfolio as of the end of 2016.

According to Wells Fargo analysis of Home Mortgage Disclosure Act, the bank said that it originated more home loans across all key categories — including loans
to African Americans, Asians, Hispanics, Native Americans, low- and moderate-income borrowers, and residents of low- and moderate-income neighborhoods — than any other bank in America over the past six years.

As the bank noted last month, it plans to continue investing in underserved communities.

“Additionally, in 2017 we plan to work with the National Urban League, the National Association of Real Estate Brokers, and others to address lagging homeownership rates within the African American community by committing to a lending goal of $60 billion in new mortgages, for as many as 250,000 new homeowners, including a goal of $15 million to support a variety of initiatives that promote financial education and counseling, over the next 10 years,” the bank said in its annual report.

Wells Fargo said that its corporate goal is to originate $150 billion in mortgages for minorities and $70 billion in low- and moderate-income mortgage originations over the next five years.

To read Wells Fargo’s full annual report, click here.

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