Wells Fargo calls for tougher regulation

A pedestrian walks by a Wells Fargo bank office in Oakland, Calif.


Kai Ryssdal: This week Federal regulators are writing some of the rules that banks will have to comply with as part of the new financial reform law. And the Financial times reports this morning Wells Fargo wants banks to keep more of the loans they make on their books -- rather than selling them to investors.

Marketplace's Janet Babin has the story.

JANET BABIN: Since the 1960s, when a bank gave you a loan on your house, the next thing they did was to sell it. They'd take money and make a loan to someone else. Then came the financial crisis, when so many loans went bad. Now regulators wants to require banks to retain 5 percent of their credit risk on their own books. Wells Fargo told the government it should require lenders to keep even more loans in house. Chris Whalen with Institutional Risk Analytics says Wells is doing this for two reasons. First, it's always been more conservative than its peers. And, he says, banks don't really have much choice right now:

CHRIS WHALEN: If you originate a loan that you can't sell to the government, essentially, right -- Frannie and Freddie -- you gotta keep it. There is no investor out there that wants to buy a jumbo right now.

Wells Fargo was one of the top recipients of help from the Federal Reserve during the financial crisis.

In New York I'm Janet Babin for Marketplace.

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Those are interesting comments so far, one person with a negative experience and one person with a positive experience. If they really thought about each others true outcome though their feelings should be reversed. Depending on the way you come into Wells Fargo Home Mortgage (WFHM) determines how much you pay WFHM (which is the real money maker of WF.corp (#1 of all its 87 companies). Either way you will be Serviced by WFHM. Once you are in their servicing department, they estimate you will refi or purchase again with them directly. No worries, they will get you the second time.

In the Negative experience above they were smart and shopped the rate, costs and received better service. You were fortunate you had access to a professional mortgage broker or independent mortgage banker with authorization to sell WF's product line. That why they immediately went back to WFHM.

The happy client is likely paying a ½% higher in rate. Please do the math to see what that cost you – you won’t be the Positive person any longer. Likely they also have a bank relationship, plus 3 or 4 other WF company relationships minimum. All are overcharging you the market rate. But hey that’s ok as long as you realize it. Most don't and that’s what WF banks on.

This move today is not for the Market’s Good. You will be a fool if you believe that. It is to further consolidate the markets access to CHOICE. Less choice = higher rates and costs = higher profit margins. The Next Stage (to borrow their old slogan) in WF’s plan is to encourage larger amounts of SKIN in the game. Smaller mortgage banks won't be able to compete with the TARP bankrolled WF, Citi, Chase and BoA. Not to mention any of the independent mortgage brokers.

I remember when mortgage brokers and regional mortgage bankers use to originate 65% of all purchase & refinance loans, and boy did that anger upper management. In 2003, every WFHM employee had to attend a two day market re-education meeting explaining how WF was going to lead the market again (we were second to Countrywide with a share of only 10.5%). But we could brag we serviced 1 of every 13 homes in America. The villains we were taught were the mortgage brokers plus Fannie and Freddie because they originated the lions share of all originations. Thanks to the real estate meltdown which has been a blessing to WFHM they now originate 23.5% of all loans and service 1 of every 4 (FOUR) loans. Servicing is not the same as retaining credit risk as described above. It would be real interesting to know what WF holds in there own portfolio.

Consumers should consider working with Brokers and Mortgage Bankers while they still can. Larger forces are leveling against you and them. The examples are today’s announcement, which will work to eliminate more regional mortgage banks, which keep in check RISING pricing pressure from the large national thrifts such as WFHM. It is a fact that now WF retail prices are higher than their quoted wholesale pricing in many instances. Seem strange? Not if you don’t want to support Wholesale. They also recently closed a wholesale processing center. Pushing more loans onto fewer processors, why? Would you as a consumer perceive the lack of processing response the fault of the mortgage broker who took your app, or the eventual Servicer of your loan two months after your closing. You would blame the broker.

Again remember the Wells Fargo slogan: The Next Stage. Well they are taking the market in stages.

First Stage. Blame brokers for the majority of the mortgage meltdown. Strongly support higher standards in licensing for mortgage originators. Including mandatory testing plus high bonding and insurance costs.

Second Stage. Spend millions on lobbing for exceptions for all above requirements. Now they are free to hire anyone off the street who is willing to be paid less, work harder and spend less time with each client (as they always have been). CAN YOU SELL? Prove it with no salary, and only a minimum commission paid (keep them hungry baby). Push volume and the responsibility of overseeing overworked processors a thousand miles away (that keeps costs to process low).

Next Stage- Increase competitor’s costs with greater regulation that does not affect WF. Wait for Congress to dismantle Fannie and Freddie, pick up their pieces pennies on the dollar, but make sure with government guarantees of profitability.

Last Stage- Be one of only 3 mega mortgage companies. All pricing and costs with in 1/8 of each other. Except for clients below 740 Ficos Then you’ll see ½ to 1 full percentage higher in cost to off set “Risk” to investors.

Now Wells Fargo’s slogan is: Together we’ll go far… right into your pocket (the unsaid truth in advertising)

Support the movement for greater transparency in mortgage lending. It will do you good.

We were told we were highly rated customers of Wells Fargo and had several relationship accounts with them including our home loan - when we asked to refi the loan (not a high risk loan) they would not talk to us - so we applied for and got a loan from a mtg broker at a very good rate due to our high scores and guess what Wells Fargo (supposedly "our" bank) bought the loan. Maybe Wells should work harder to follow their own advice.

Wells Fargo kept our home loan from start to finish. I appreciate dealing with only one lender for the life of the loan.

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