Wells Fargo Stepping Back into Non-Prime Wholesale — With FHA

Wells Fargo Home Mortgage, the first major bank to shutter its subprime wholesale arm in July of last year, is tip-toeing back into nonprime wholesale via FHA-insured loans, American Banker reported Friday. Like many other major lenders, Wells now sees loans insured by the Federal Housing Administration as a viable alternative to the private-party subprime market that has all but withered up during the recent market turmoil. While Wells may be getting back into the nonprime wholesale game by reinventing the channel around FHA originations, the bank isn’t content with existing HUD guidelines and is requiring tighter guidelines than those prescribed by the FHA currently. Borrowers must have a minimum FICO of 580 for most loans it buys from correspondents, and said it will not consider “nontraditional credit histories” in evaluating loans, according to the American Banker report. FHASecure loans — designed as a refinance option for troubled subprime borrowers whose credit in many cases is damaged below the 580 FICO floor — are not subject to the new limitations. The news of Wells’ return to nonprime wholesale, even in a limited form, should come as welcome news for at least some brokers; a number of major lenders, including Bank of America Corp. (BAC) and Washington Mutual (WM), have shuttered their third party channels as they look to refocus mortgage operations on retail originations. The fate of Countrywide’s substantial wholesale platform, as well, is still up in the air pending acquisition by BofA later this year; neither company has yet commented publicly on the fate of third-party originations at Countrywide once the merger is complete. Application activity for FHA loans has surged in 2008 as the Bush administration and Congress look to the Depression-era agency to bolster a housing market that is badly sagging. Recently-passed Congressional legislation has boosted FHA lending limits in key high-cost areas to has high as $729,500, and proposals currently being debated on Capitol Hill would seem set to further expand the government-insured housing program. The House Financial Services Committee this week took up formal debate on H.R. 5830, the FHA Housing Stabilization and Homeowner Retention Act, a bill that would allocate $300 billion in Federal funds to the housing agency for refinancing of distressed mortgages. A key vote on the proposal is expected sometime next week, with the White House already suggesting its opposition to the bill. Disclosure: The author held a long position in CFC, and no other positions in firms mentioned in this story, when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.