THE BASIS POINT

Wells Fargo CEO John Stumpf: 3 Point Plan To Fix Mortgages

 

Here are a couple Monday morning questions: Is the rise of non-bank lending a good thing? Does the GOP’s rush to dismantle Fannie & Freddie threaten a fragile housing market?

And the biggest question of the day, or any day, is how do we fix the mortgage mess? Wells Fargo CEO John Stumpf offers a three point plan in Fortune magazine. In short it’s: (1) make lenders have skin in the game, (2) make government backing of loans explicit, not implicit, and (3) uniform underwriting standards at all banks. Number 1 and 2 are covered by Finreg with details being sorted out now. Number 3 warrants a bit more commentary.

In a world where a bank knows its customers intimately, they might make a special loan concession for an old customer who’s fallen on hard times and doesn’t quite fit the loan approval mold. But in a world where a bank has to sell their loans (even if they’re keeping a percentage of all loans sold as required under Finreg), all the loans must conform to a certain set of standards to the securities the loans end up being part of can be rated, priced, and sold with transparency.

Stumpf’s comments are relevant, including that third point, but only the small firms will be able to meet the needs of borrowers who don’t quite fit the mold and also meet underwriting standards required for securitization. Big firms’ underwriting processes are all about box-checking and volume, so anytime every box isn’t checked, that borrower is going to be out of luck.

 

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Comments [ 1 ]
  1. CEE DEE says:
    May 9, 2011 at 7:21 pm

    Concerning Mr. John Stumpfs’ #3 rule (uniform underwriting for all banks), this “rule” is, mostly likely, the reason for my “one and only” complaint with our (Wells Fargo Main not Local bank). The volume of loans which a “loan specialist” has is often staggering. When “good” customers basically get overlooked or “shelved” without efforts to confirm or verify the “issues” with a credit report (especially if the “issues” concern a $6.50 Pebbles account showing a ZERO balance), then should not the “standards” also include the “quality and professional” standards of the “underwiters”?

    Small town America is having it hard right now, and throw the Healthcare “Specializations” and Insurance Coverage issues into the mix, then most borrowers, including good record borrowers, have some type of “medical” bills in the unpaid or paying columns. As a customer, if you haven’t read your “credit reports” recently, then even the highest quality “borrower” should get a legal degree and order yours…Change the legitimate “issues”, and have a good laugh or cry over the rediculous and petty “projections” and “precursors” used to establish if you are a “safe loan risk”! Basically, If a person has a “history” of paying off all his bills/loans on time and without problems, and he has stayed true to that behavior since birth, and he is now close to 60 years old, then it is a safe assumption that he we continue in this same pattern! If a bank wants to be “safe”, then why not simply require “loan insurance”.

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