Wells Fargo & Company (WFC) has taken yet another step to drive up mortgage originations. The Wall Street banking giant, being one of the largest originators of home loans in the U.S., is loosening lending requirements for people purchasing certain types of homes, per a Financial Times report.
In an interview with the news agency, Wells Fargo mortgage production head Franklin Codel said “We’re tweaking our condo [condominium] approvals to make them more consistent with what Fannie [Mae] and Freddie [Mac] allow.”
A condominium is a form of housing facility wherein apartments are individually owned but the common shared spaces are jointly owned by all the homeowners.
Federal National Mortgage Association or Fannie Mae (FNMA) and Federal Home Loan Mortgage Corporation or Freddie Mac (FMCC) has significant influence on the way banks generate mortgage originations as the government sponsored mortgage companies accept debt that meets certain standards.
The latest procedure will not require certain information that usually take longer time to collect and pose a hindrance for people seeking a loan. Previously, it was necessary for borrowers to obtain additional information from their condominium associations. These associations are basically their local group, which collects fees and administers decision-making for the apartment block regarding areas like fee collections, tax payments and the number of homes in foreclosure.
US condominium sales have not been able to reach their pre-crisis level when the real estate market was flourishing on simple credit standards. However, condominium sales have shown signs of improvement since 2008.
As the housing market is showing gradual improvement, Wells Fargo aims to capitalize on the rising demand for new home purchase. According to the company’s recently released survey, over two-thirds of Americans believe the time is right to invest in property. However, as per the survey many argue that higher downpayments might be required.
Wells Fargo’s mortgage revenues improved sequentially in second-quarter 2014 and management expects origination volumes to be higher in third-quarter 2014.
Notably, per a Bloomberg report last month, the bank has increased employees’ payoff, in a similar effort to boost the mortgage business. (Read more: Wells Fargo Hikes Commissions to Boost Mortgage Revenues.)
Bottom Line
As banks are already combating a number of challenges including a competitive environment, escalating costs and a persistent low environment, they are on a continuous look out for strategies to ease the pressure on revenues. Notably, in order to generate more loans, Wells Fargo and its several competitors have decreased the lower end of the credit scores of borrowers.
Further, stricter regulations have added to the woes that weigh on the banking business to some extent. While such regulations aim at bringing financial stability and preventing any further crisis, banks need to maintain a balance to comply with the regulations while improving the top line.
Wells Fargo currently carries a Zacks Rank #2 (Buy). Monroe Capital Corp. (MRCC) is a better-ranked stock in the finance space. It sports a Zacks Rank #1 (Strong Buy).
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