Wells Fargo Announces Added Improvements to Nonprime Mortgage Lending Practices

DES MOINES, IA – Wells Fargo Financial and Wells Fargo Home Mortgage today announced changes to benefit customers of their nonprime real estate-secured lending businesses. These improvements include:

• Moving to a flat maximum limit for origination fees on retail nonprime loans;
• Simplifying caps on prepayment charges;
• Eliminating mandatory arbitration clauses on real estate loans at Wells Fargo Financial to be consistent with Wells Fargo Home Mortgage;
• Aligning key policies across these two Wells Fargo businesses, including aligned policies for making certain that prime pricing is offered to all customers whose credit characteristics and transaction terms make them eligible for prime pricing; and
• Updating of Wells Fargo’s guiding principles for responsible nonprime real estate lending that were expanded to nine earlier this year.

“These improvements are part of our continuing efforts to respond to our customers’ evolving needs by introducing new practices, aligning key policies and articulating in more detail our guiding principles to help our customers succeed financially,” said Mark Oman, senior executive vice president for Wells Fargo’s Home and Consumer Finance Group. “These changes build on the work we’ve done, such as publishing our principles for nonprime real estate lending last year, to help us improve the way we serve our customers.”

The changes apply to Wells Fargo Financial, Wells Fargo & Company’s consumer finance subsidiary, as well as Wells Fargo Home Mortgage’s nonprime retail lending business, Home Credit Solutions, and its third-party nonprime lending channel, Alternative Lending. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A.

As a result of the new flat origination fee structure, nonprime lending customers will be charged origination fees limited to a maximum of $1,500 for any real estate-secured loan originated by Wells Fargo through its retail channels. Customers will have the choice to “buy down” the interest rate of their home loan by paying bona fide discount points. Alternative Lending will continue to have compensation caps on mortgage broker points and fees.

In addition, Wells Fargo is simplifying prepayment charges if a customer chooses a nonprime home loan with a prepayment fee option. The company will cap prepayment fees on nonprime real estate loans at 3 percent of the loan amount in year one of the loan, 2 percent of the loan amount in year two and 1 percent of the loan amount in year three to the extent allowed by law. Wells Fargo will waive all prepayment charges after 12 months when a Wells Fargo nonprime mortgage is refinanced by another loan originated through any Wells Fargo retail channel.

Other key policies and procedures will now be consistent across Wells Fargo’s nonprime mortgage lending businesses. These include aligned policies and procedures for making certain that prime pricing is offered to all customers whose credit characteristics and transaction terms make them eligible for prime pricing. Also, Wells Fargo Financial will join Wells Fargo Home Mortgage in no longer including mandatory arbitration clauses in its mortgage loans.

“Wells Fargo is firmly committed to helping the millions of Americans who, for whatever reasons, have not been able to qualify for traditional prime real estate loans,” said Oman. “We want to be a leader in the industry by doing so responsibly. These changes, which are under way and expected to be completed before year-end, are further evidence of our commitment.”

Wells Fargo’s nine responsible lending principles, which describe how it helps customers who need nonprime real estate products, have been updated to reflect the new changes announced today. A summary of the principles:

1. Appropriate loan pricing: Pricing on all Wells Fargo real estate loans is fully disclosed, competitive and reflects a complete view of the customer’s financial picture and credit history, as well as characteristics of the transaction and the property involved. Wells Fargo will have aligned policies for making certain that prime pricing is offered to all customers whose credit characteristics and transaction terms make them eligible for prime pricing.

2. Caps on points and fees: Wells Fargo caps the points and fees it charges on nonprime real estate loans and reviews these limits to maintain loan pricing that is competitive and appropriate based on the marketplace, and the customer’s financial picture and credit history. Nonprime loans originated through Wells Fargo’s retail channels will have a flat maximum limit of $1,500 on origination fees, and retail customers will have the choice to “buy down” the interest rate of their home loan by paying bona fide discount points.

3. Wide range of terms and features: Wells Fargo offers nonprime real estate products with a wide range of terms and features that are appropriate for the customer’s circumstances and provide customers with tangible benefits. However, it is Wells Fargo’s policy to not sell single-premium credit insurance. The company does not make nonprime real estate loans with negative amortization or call options. Wells Fargo does not make loans that require interest rate increases if payments are delinquent or with payment schedules that require two payments at closing.

4. Informed choices: Wells Fargo gives customers the information they need to make fully informed decisions about their real estate loans. Consumers receive disclosures that exceed legal and regulatory requirements about nonprime loan options, costs and prepayment fee agreements.

5. Prepayment fees: Wells Fargo’s prepayment fee periods will be limited to a maximum of three years and the amount of the fee will be capped at 3 percent of the loan amount in year one of the loan, 2 percent of the loan amount in year two and 1 percent of the loan amount in year three to the extent allowed by law. The company does not allow a prepayment fee period to exceed the fixed term of an adjustable-rate loan and advises customers about the availability of loans without prepayment fees (as well as the costs for such choices). In addition, Wells Fargo will waive all prepayment charges after 12 months when a Wells Fargo nonprime mortgage is refinanced by another loan originated through a Wells Fargo retail channel.

6. Benefit to the consumer: Wells Fargo will make a nonprime loan only if it offers a demonstrable benefit to the consumer. Such benefits may include enabling a home purchase, lowering the interest rate or reducing the monthly payment on debt.

7. Ability to repay: Wells Fargo will approve applications for nonprime real estate loans only if it determines the borrower has the capacity to repay the loan.

8. Preserving homeownership: Wells Fargo works diligently to help borrowers stay in their homes if financial difficulties arise. Wells Fargo’s customer delinquencies and foreclosure rates have been below industry averages.

9. Customer service: Wells Fargo carefully and promptly researches all customer complaints. If the company has erred, it will do what is right for the customer.

Wells Fargo & Company is a diversified financial services company with $435 billion in assets, providing banking, insurance, investments, mortgage and consumer finance to more than 23 million customers from more than 6,000 stores and the internet (wellsfargo.com) across North America and elsewhere internationally. Wells Fargo Bank, N.A. is the only bank in the United States to receive the highest possible credit rating, “Aaa,” from Moody’s Investors Service.