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Home | Daily Dose | Wells Fargo May Loosen Credit Requirements
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Wells Fargo May Loosen Credit Requirements

According to a report by Reuters, Wells Fargo is looking to re-enter the subprime mortgage market by lowering its standards of acceptable credit scores for borrowers. Wells Fargo is the largest U.S. mortgage lender, and a move back into subprime mortgages may signal a sizable shift in the mortgage lending environment.

Wells Fargo is interested in customers with credit scores as low as 600, notes the report. Its prior limit was 640, often regarded as the limit between mortgages that are considered prime and subprime. Credit scores range from 300 to 850.

Other large banks, however, seem reticent to follow Wells Fargo’s lead, remaining cautious about any return to the subprime market. Lenders are wary of subprime mortgages, due in large part to the passage of the 2010 Dodd-Frank Law. If mortgage borrowers don’t meet the law’s eight criteria to qualify for a mortgage and later default on a loan, a borrower can sue the lender and argue the loan should have never been made.

Lenders venturing back into the high-risk loans market are even using a subtle marketing trick to assuage fear and spur demand—subprime loans become “another chance mortgages” or “alternative mortgages,” shedding the stigmatized “subprime” label.

Incentivized by rising mortgage rates, lenders have plenty of reasons to target borrowers with lower credit scores. Rising rates are expected to reduce U.S. lending by 36 percent in 2014, according to the Mortgage Bankers Associations (MBA) forecast, due to a large drop in refinancings.

Wells Fargo is looking to lend to borrowers with weaker credit, but only under the condition the mortgages can be guaranteed by the Federal Housing Administration (FHA). Since the loans would be backed by the government, Wells Fargo can package them to sell to investors as bonds.

Subprime mortgages were at the center of the financial crisis, but many lenders believe that with proper controls the risky business ventures can be properly contained and generate profit.

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About Author: Colin Robins

Colin Robins
Colin Robins is the online editor for He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News' sister site.

One comment

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    Don’t believe a word of it. My client and I were assured that their application had been reviewed in depth by Wells Fargo’s underwriters at the time we went under contract, and that all that was left was dotting i’s and crossing t’s. They collected document for six weeks, and many of the same documents were requested multiple times. Each time the feedback was positive, there was nothing to worry about. Two days prior to the original closing date, the document requests intensified, almost as though they never even looked at any of them before. We were forced to extend twice, blowing right past the loan contingency, and at 3 p.m. on the third closing date, they advised they could not grant the loan. I don’t know about you, but it sounds to me like noone there did their job either effectively, nor efficiently. My client is a military veteran with a guaranteed pension, with a highly paid current job to boot. I will NEVER recommend Wells Fargo as a lender.

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