Wells’ Stumpf: Putbacks Are Hurting Housing

Mortgage & Real Estate









WASHINGTON — Credit availability is being stifled in part by a fear that lenders will be forced to buy back loans they sell into the secondary market, according to John Stumpf, the chief executive of Wells Fargo.

Speaking at a National Press Club event on Wednesday, Stumpf discussed a range of issues, including the economic outlook and the current strict regulatory environment.

But he spent a considerable chunk of his remarks focused on why housing has not picked up despite a prolonged period of low interest rates. In addition to citing factors including high student loan debt and a tough job market, Stumpf pointed to credit availability as the main culprit.

He said putbacks by Fannie Mae, Freddie Mac and the Federal Housing Administration, in which lenders are forced to buy back loans after they are determined not to meet those agencies’ standards, are hampering lending.

“There are certain parts of the market where you that can’t get a conforming mortgage because we know what happens” when loans go into default, Stumpf said.

Stumpf said that many putbacks are based “on technicalities,” citing an example of different versions of the same name on a borrower’s application as a possible reason for one. Because lenders are worried they may have to later buy back the loan if it goes into default, Stumpf said lenders are being extra cautious.

Even if guidelines from the government-sponsored enterprises say it is acceptable to lend to a borrower with a 580 credit score, the lender will set a threshold of 680 in order to protect itself, Stumpf said.

However, Stumpf said the regulators are beginning to understand the impact of these putbacks and they are looking for ways to “open the credit box.”

Stumpf made his comments at the same time that the White House hosted a meeting between industry representatives and federal regulators on just that subject.

While the meeting was private, a White House spokesperson said it was an effort to help “regulators to cut red tape so all responsible families can get a mortgage.”

“Today’s meeting will continue the dialogue on ways to drive further progress,” she said.

The meeting included David Stevens, head of the Mortgage Bankers Association, among other mortgage industry representatives, as well as officials from the Treasury Department, Department of Housing and Urban Development, Fannie, Freddie, and the Consumer Financial Protection Bureau.

“Among the items we discussed were GSE policies and oversight, including the rep and warrant framework; improving FHA processes and programs; and refining QM [Qualified Mortgage] and other Dodd-Frank regulatory regimes in ways that will provide lenders more certainty, allowing them to extend credit to a greater number of qualified borrowers,” said Stevens in a statement.

“We all agreed the objective is to find ways to responsibly and sustainably increase access to mortgages, and we look forward to continuing to work with them to find ways to achieve that goal.”

During his remarks, Stumpf also discussed the increased regulatory burden that all institutions, particularly the largest ones, are operating under. He cited stress tests, new liquidity and capital rules, and the Volcker Rule, acknowledging that they are part of a legitimate effort to end “too big to fail.”

Still, he said the combination of new rules has become problematic. Any one of these changes “all make sense in the singular,” Stumpf said, but in the aggregate, “it’s a large load.”

“It used to be that if you got your loan book right, that was about the end of it,” Stumpf said.

Now, he said, there are concerns about cyber risk, interest-rate risk, anti-money laundering risk and more. He said the San Francisco-based bank has increased its capital to $181 billion from $99 billion, and holds 24% of its balance sheet in liquid assets.

Wells Fargo can no longer make $1 of loans per $1 of deposits due to the added requirement. “Today we have $11 of deposits and $8 in loans,” he said.

The CEO said that policymakers should step back and stop adding new requirements, at least for now.

“Give this stuff a chance to work,” he said.

There is an economic price if there is excessive regulation and too much capital on the sidelines.

He also said issues in Washington, including battles over the debt limit and fears of a fiscal cliff, have hurt economic growth.

“When Washington behaves badly… it has an impact on the real economy,” Stumpf said.

Overall, Stumpf said the economy is doing better than recent data indicates. “Energy is booming,” he said, auto sales are at record levels, commercial real estate is doing well and manufacturing is coming back.

“We are optimistic about what is happening in America and optimistic about our long-term future,” he said.

Stumpf added that he is impressed with companies like Apple, Amazon and Google.

“They are teaching consumers what retailing is all about,” he said.

He noted that Wells Fargo is making a “lot of investments” to enhance customer experience in its branch offices. The bank has several labs around the country to test technology such as voice recognition that could benefit Wells Fargo’s customers.

However, its branch system remains vitally important. He noted most of Wells’ customers, even Millennials, use its branches more often than say in surveys.

Millennials “don’t believe they do. They tell you they don’t,” Stumpf said.

— Rob Blackwell contributed to this article.

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