Wells Fargo (WFC) is telling regulators exactly what kind of risk the bank is willing to retain under the new provisions of Dodd-Frank. Under the reform, federal regulators must determine what mortgages an originator should still be on the hook for after the loans are packaged and sold in the secondary market. Wells Fargo said risk retention, for both agency and nonagency mortgages, should include an early payment-default provision covering up to the first three months of a loan and a 5% vertical slice of retained credit risk on top of the standard representations and warranties. The bank, which is the largest mortgage originator in the U.S., is also calling for a more simple and narrow definition of a qualified residential mortgage, one that is exempt from risk retention. Wells Fargo doesn’t want a broad definition that encompasses most of the mortgage market because it “will produce a tendency to avoid lending to credit-worthy borrowers falling outside that definition,” as fewer lenders are willing to hold on to risk. The American Securitization Forum said risk retention is key in establishing a sound mortgage securitization market. Wells Fargo added in a letter to regulators that a broader definition would create a national underwriting standard, which the bank believes is not adaptable to every individual borrower’s assessment for a loan. “A simpler definition offers the advantages of avoiding unintentional orphaning of a segment of borrowers, requiring less maintenance over time,” the bank said. Wells Fargo said mortgages with a 70% loan-to-value ratio or below should qualify as exempt. Its effort is contrary to many other banks in the mortgage space. Write to Christine Ricciardi. Disclosure: The author holds no relevant investments.
Wells Fargo details risk-retention rules it seeks
Most Popular Articles
Latest Articles
Spring housing market gets more inventory
We’ve now had back-to-back weeks of healthy housing inventory growth, making spring 2024 much healthier than spring 2023.
-
The best real estate podcasts for agents and brokers in 2024
-
Home sellers saw their profits shrink in the first quarter: Attom
-
If reelected, Trump could seek greater control over Federal Reserve
-
Acra CEO Keith Lind on staying the course amid choppy waters in non-QM
-
HUD walks back some proposed changes to HECM for Purchase program