Wells Fargo, the nation’s largest mortgage lender by volume, appears to be making fewer FHA loans these days. But borrowers who are interested in the program shouldn’t worry. There are still plenty of lenders offering this government-backed mortgage option.
Wells Fargo Made Fewer FHA Loans Last Year
According to a study conducted by Inside Mortgage Finance, an industry publication, Wells Fargo generated nearly $20 billion in FHA loans in 2013. That gave it 9.4% of total market share within the FHA-insured niche category — more than any other lender. But in 2014, Wells Fargo only originated $5.1 billion in FHA loans, a sharp decline over the previous year.
Quicken Loans moved up to the top spot last year, generating $6.68 billion in FHA loans and capturing 6.3% of market share. Wells Fargo dropped to second in terms of market share.
Overall, it appears that the nation’s largest mortgage lenders are scaling back on FHA-insured home loans, when viewed against their total lending volumes. This is partly the result of lawsuits made by the federal government against lenders for mistakes made during the housing crisis. Whatever the reason, it’s clear that large lenders such as Wells Fargo are making fewer FHA loans these days.
Other Lenders Filling the Void
While the big banks appear to be stepping back from these loans, their popularity among home buyers is still high. First-time home buyers, in particular, are drawn to the FHA program due to the comparatively low down payment of 3.5%. As a result of ongoing consumer demand, other mortgage companies are still embracing the government-backed mortgage program and offering it as a featured product to borrowers.
The Wall Street Journal recently mentioned loanDepot LLC and Guild Mortgage Co. as two of these non-bank lenders who are stepping in to fill the void. The loanDepot website claims that FHA loans enable “many homeowners who wouldn’t qualify for conventional financing to purchase or refinance a home.” Guild Mortgage Company touts the program’s “flexible guidelines and lower credit requirements.”
While it’s true that this program offers certain advantages for borrowers, it has drawbacks as well. Borrowers must weigh the pros and cons of this, or any other mortgage product, before making a decision. So let’s talk about those pros and cons.
Benefits and Drawbacks of FHA Program
Lenders frequently tout the benefits of FHA loans. Borrowers who use this program can put down as little as 3.5% of the purchase price or appraisal amount, whichever is less. Conventional loans (those that are not insured by the government) typically require larger down payments. Lenders are a bit more lenient with their qualification guidelines as well, when offering FHA loans.
But there are disadvantages as well. The biggest drawback is the fact that FHA borrowers have to pay two types of mortgage insurance when using this program (upfront and annual). This inflates the monthly payment as well as the total cost incurred over time.
Borrowers who can’t afford a 20% down payment usually end up paying some form of mortgage insurance, regardless of whether they use an FHA or a conventional home loan. So the cost of the FHA insurance doesn’t necessarily steer people away from this program. For many borrowers, the smaller down payment makes up for the added cost of the mortgage insurance premium. As with any other loan product, one must weigh the pluses and minuses.
Disclaimer: This story contains data relating to Wells Fargo FHA loans and lending practices. This information was obtained from third-party sources that are deemed reliable but not guaranteed.