Wells Fargo, the nation’s largest mortgage lender, is introducing a new home loan program that emulates those offered by the Federal Housing Administration with a couple of buyer-friendly twists.
Offering a down payment of as little as 3 percent (and up to 9.99 percent) for fixed-rate mortgages, the “yourFirst Mortgage” product replaces three separate government-sponsored enterprise loan options formerly offered through the bank for first-time and low-to-moderate income borrowers.
Through this homogenization and consolidation of products, the bank is simplifying some of the extensive loan application hoops, a disadvantage of the other Fannie Mae and Freddie Mac programs such as HomeReady, to reduce the number of barriers preventing qualified buyers and working families from purchasing a home.
“There are a lot of conventional loan products with low down payment options, but the criteria are so complex that it creates barriers for many qualified borrowers,” said Brad Blackwell, executive vice president, Wells Fargo Home Lending, in a press release. “With yourFirst Mortgage, we wanted to provide access to credit and simplify the experience while maintaining responsible lending practices.
“We partnered with credit experts such as Fannie Mae and Self-Help, an affiliate of the Center for Responsible Lending, to develop an easy-to-understand affordable loan option that gives homebuyers the best offering in the market.”
According to National Mortgage News, some loans under the new product will carry private insurance, while Self-Help will absorb the risk on others. The loan is only available for purchase transactions and excludes refinance options.
New home loan offerings
Those who apply “yourFirst Mortgage,” a conventional loan program, will undergo the full documentation and underwriting process to confirm their ability to make payments.
But the product aims to reduce out-of-pocket costs and expand buyers’ line of credit to include nontraditional sources such as tuition, rent and utility bill payments. Closing and down payment expenses can come from gifts, and the income of family members or renters who will live in the home can be considered.
The affordable mortgage program encourages borrowers to take a homeowner education course taught by a Department of Housing and Urban Development-approved counseling agency. But unlike Fannie and Freddie, which require this education as a stipulation for obtaining a loan, Wells Fargo is incentivizing customers with a down payment of less than 10 percent to earn a 1/8-percent interest rate reduction upon course completion.
“We changed the entire positioning of homebuyer education from an impediment and a reason you can’t get a loan to an incentive,” Blackwell told National Mortgage News. Blackwell also said that the new product aims to up the volume of affordable mortgage options, as Wells Fargo “originated only 200 of Fannie’s HomeReady loans during the first quarter.”
“We’re not interested in doing a handful of loans. We’re interested in making a big impact on the first-time homebuyer market by creating a better alternative for customers,” he said.
A viable alternative?
As Wells Fargo seeks to claim some of that first-time buyer pie from the government options, will buyers find it to be an attractive alternative? Steve Cook, the editor and co-publisher of Real Estate Economy Watch, weighed in.
“Well’s new program is not a revolutionary change from the government-backed programs already out there and is certainly not a sign that lending standards are loosening, but it does provide millennial buyers a new down payment choice from a leading conventional lender,” he said.
It hasn’t been since the height of the housing bust, when lenders were handing out loans like candy, that first-time buyers have had so many options, Cook discussed in a previous Inman article.
“If you are a first-time buyer with marginal credit or a limited credit history, or if you are carrying significant student or consumer debt, you are probably better off with FHA.
“FHA’s median FICO scores for approved purchase loans are more than 60 points lower today than they are for conventional purchase loans. For those carrying debt, the FHA front-end DTI (debt-to-income) is much higher, at 28 percent compared to 23 percent for conventional loans.”
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