Wells Fargo is the biggest mortgage lender in the United States. So when the company issues statements about its mortgage lending requirements for 2014, those statements are worth noting.
Wells Fargo made headlines recently by stating they would not alter their basic mortgage requirements or lending practices in response to the new Qualified Mortgage (QM) rule, which takes effect on January 10, 2014. So it will be business as usual at Wells Fargo, at least where mortgage requirements are concerned.
The QM Rule in 100 Words or Less
The Qualified Mortgage rule was created by the Consumer Financial Protection Bureau (CFPB) to satisfy requirements put in place by the Dodd-Frank Act. The idea was to create a class of safer mortgages by prohibiting certain features that are considered risky for borrowers. The QM rule prevents negative-amortization home loans, interest-only payment structures, and balloon loans. It also limits borrowers to a debt-to-income ratio of 43% or below.
The new rule is set to take effect on January 10, 2014. You can learn more about it, or post a question, by visiting the informational website we have developed at QualifiedMortgage.org.
No Major Changes to Wells Fargo’s Mortgage Requirements
So, will we see tighter mortgage requirements at Wells Fargo in 2014, as a result of the new rule? Apparently not. Company officials recently said they have no plans to shift their lending practices, and that they will continue to generate home loans that don’t meet the definition of a Qualified Mortgage.
Brad Blackwell, executive vice president of Wells Fargo Home Mortgage, explained: “It’s clear the borrowers we’re lending to today have an ability to repay. We don’t see a significant reason to contract our lending.” He added that the company was already lending to “high-quality borrowers,” based on their own mortgage requirements and lending practices.
Some Lenders Making Adjustments for 2014
While Wells Fargo has no plans to alter its mortgage requirements in 2014, other lenders may adjust their business models to abide by the new rules. But let’s be clear. They are not being forced to comply with the QM standard, despite the outcries of some in the industry. They are being incentivized.
Lenders that make QM-compliant loans will receive some degree of legal protection against consumer lawsuits (particularly those resulting from a foreclosure situation). The level of protection varies based on the pricing of the loan.
As a result of this powerful incentive, some lenders will adjust their mortgage requirements in 2014 to be better aligned with the QM parameters. But Wells Fargo is not one of them. For now, the company plans to maintain the status quo, where their mortgage-lending practices are concerned.
It’s worth noting that many of the loans being generated in the current market already meet the basic requirements of QM. Consider the evidence. The CFPB did a study of home loans originated in 2012 and found that most of them (95%) met the definition of a Qualified Mortgage. So clearly, the sky is not falling.
Wells Fargo reports similar numbers. Mr. Blackwell estimated that around 95% of the loans the company has made this year would fall within QM guidelines. Based on these findings, they are comfortable carrying their current lending requirements into 2014.
Have Questions About QM Rules and Requirements?
As it turns out, mortgage professionals have a lot of questions about the forthcoming rules. This is only natural, given the thousands of pages of supporting documents.
In response to such questions, we have launched a Q&A service at QualifiedMortgage.org. It is built around the same question-and-answer functionality you may have seen on Yahoo Answers and similar websites. Anyone can post a question, and anyone can answer a question. This gives mortgage professionals a structured way to share information and insight, where the new rules are concerned.
To participate: Visit www.qualifiedmortgage.org/questions to post a new question, or to answer an existing question.
Disclaimer: This story contains information about Wells Fargo mortgage-lending requirements, in relation to the forthcoming QM rule. This story includes statements made by third parties not affiliated with this website. The Home Buying Institute makes no claims or assertions about the mortgage standards and requirements used by Wells Fargo or any other lender. To learn more about the company’s criteria for borrowers in 2014, please contact a company representative directly.