Boston, MA 08/27/2014 (wallstreetpr) – Wells Fargo & Co (NYSE:WFC) push to protect itself from federal authorities has seen it issue a stunning warning stating it would block the issuance of home loans to people with low credit scores. The move is aimed’ at protecting the bank from unnecessary costs that come with soured loans according to an article on Associated Press.
The move by the bank’s CEO, John Stumpf, comes in the wake of huge penalties currently being imposed on the likes of Bank of America Corp (NYSE:BAC) and Goldman Sachs Group Inc. (NYSE:GS) on their issuance of faulty mortgage-backed securities during the economic crisis. Wells Fargo & Co (NYSE:WFC) CEO has aired his anger on the way government-backed agencies were quick to blame banks for no reason for faulty mortgage underwriting consequently forcing them to repurchase them in what is commonly known as a ‘Put-back.’
Stumpf sentiments come in the wake of the U.S mortgage industry continuing to pick itself from the financial crisis that saw underwriting standards being ignored by some of the mortgage originators. Push for growth in the mortgage lending space saw Wells Fargo & Co (NYSE:WFC) back in February start issuing loans to borrowers who had credit scores of as low as 600 doing away with its initial limit of 640.
Wells Fargo Lessens Requirements on Loans
Some of the top lending institution in the U.S are shying away from lending to people with low Credit scores as one of the ways of avoiding Put-back risks. Mortgage lending continues to slow in the U.S with new repurchases also showing signs of marginal growth.
The move to allow people with scores less than 640 to access loans is part of the bank’s strategy to avert a decline in banking revenue, which was on the decline in the last quarter. Lending standards at Wells Fargo & Co (NYSE:WFC) are not in any doubt as compared to other banks as the bank enjoyed healthy deposits in the second quarter that were 133% of average loans compared to 126% the prior year.