Wells Fargo [1] is launching a new low-down payment mortgage program for first-time and lower-income borrowers that could be the bank’s way out from under the shadow of the Federal Housing Administration [2].
The bank announced on Thursday that it would introduce yourFirst Loan [3], a new home loan program that offers a down payment of as little as 3 percent for fixed-rate mortgages, lower out-of-pocket costs, expanded credit criteria, and incentives for homebuyer education.
According to Wells, some of the features of the program will include the ability to use gifts and down payment assistance programs towards down payments and closing costs; a one-eighth percent interest rate reduction for low-down payment borrowers who a complete a homebuyer education course; expanded credit history reports that factor in nontraditional sources like tuition, rent, or utility bill payments; and weighing the income of others who will live in the home, such as family members or renters.
Wells’ program is somewhat modeled after a Fannie Mae [4] program introduced last year that has been considered overcomplicated and has had limited success. Wells believes it has made the process more direct and easier for borrowers to understand.
The program is also strikingly similar to Bank of America [5]’s Affordable Loan Solution [6], which it rolled out [7] in March and which was seen by many as a big-bank substitute for FHA lending.
Wells’ program is also its first significant step towards meeting its corporate social responsibility goals [8], announced in April, when the bank made a point to emphasize help for underserved communities nationally. It also is the bank’s first major step towards distancing itself from the FHA since agreeing in February [9] to pay a $1.2 billion settlement related to "reckless" certifying of the credit and underwriting quality of FHA loans it originated [10] in 2012.
Like most major banks, Wells Fargo has drifted away from FHA-backed lending over the past few years. Though Wells reported making $6.3 billion in FHA-backed loans last year‒‒and was, in fact, the only major bank to crack the FHA’s Top 20 lender list, according to the Wall Street Journal [11]‒‒it has curtailed its association with the FHA over the past two years. According to Market Insider, Wells’ loans made up 9 percent of FHA’s total mortgage dollars in 2014, but just 2.5 percent last year.
Wells remains the largest home lender in the country and is no doubt expecting its new program to make deep inroads into a market that has been less-than-easy for borrowers of limited means to crack since the bottom dropped out of the economy nearly eight years ago.
“We developed yourFirst MortgageSM to serve the broad population of qualified first-time homebuyers, including the low- to moderate-income customers and the diverse Millennial population‒‒which is more than two-thirds of first-time homebuyers today,” said Franklin Codel, head of Wells Fargo Home Lending. “This is good for our customers and benefits the economy by building stronger communities through sustainable homeownership.”