Magazine article American Banker

Wells Fargo Goes Old-Fashioned in Mortgage Underwriting

Magazine article American Banker

Wells Fargo Goes Old-Fashioned in Mortgage Underwriting

Article excerpt

Byline: Kate Berry

LOS ANGELESA a Wells Fargo (WFC) plans to give its underwriters more control in approving mortgages that it retains in its own portfolio, as the bank tries to add high-quality assets to its balance sheet.

Wells is touting the new strategy, which it calls "judgment underwriting," as part of an effort to attract borrowers that may not qualify for conventional mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration. Mortgages that the San Francisco bank underwrites using these new guidelines will not be sold to the government-sponsored enterprises; instead, Wells will keep them in its "held for investment" portfolios.

Brad Blackwell, a Wells Fargo executive vice president in the bank's home mortgage unit, said that regulations have caused most banks to shift towards rules-based underwriting, which can be less flexible than more old-fashioned, in-house underwriting processes that allows for variations in individual borrowers' qualifications.

Wells Fargo's new "judgment-based" underwriting is "anathema to what is happening in the mortgage industry today," Blackwell said during a panel discussion at a homeownership conference in April. "The more regulated the mortgage industry gets, the less judgment is allowed to be used."

But he acknowledged that going back to old-fashioned underwriting has its own challenges.

"This is hard to do," Blackwell told American Banker after the discussion. "How do we create consistency in using judgment for our own portfolio?"

Bank spokesman Tom Goyda said Wells is in the early stages of implementing the new strategy, and acknowledged that it will require extensive analysis and underwriter training.

Banks already have the ability to classify loans into different risk buckets. But Blackwell said there are "compensating factors," which he did not identify, that underwriters will be trained and encouraged to look for. …

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