Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc

Posted on October 3rd, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

**NOTE – Mortgage/Real Estate professionals…feel free to share your experiences in the comments section below.  Due to a consistent denial by Wells management, there is a belief that Wells was the safest out there through the bubble years and took very little risk. Tell us about your Wells deals…did they really do things so much safer than everyone else? From my experiences, they were one of the busiest and ‘best’ lenders out there during the bubble years, that’s for sure. But in the mortgage business ‘best’ means easiest and most risky.  That like saying ‘she is a great appraiser’ – wink-wink.

The CEO of Wells was just on CNBC in a lengthy interview with Maria Bartaromo and he said “we never did stated income, low document, no document, interest only or subprime loans.” That is not accurate. I have covered Wells to death but here are a couple of documents I think the CEO might like to see. I don’t want to sound like I am coming down on Wells, but it is this type of deception that has turned a crisis of confidence into a full-blown global financial system meltdown.

The first page below is their portfolio intermediate-term ARM product guidelines from 2006 that were their top sellers from 2003-2007. Wells Fargo led the market in these. I believe they still have $75 billion in “Prime” first mortgages, including “Jumbo Prime” on their balance sheet of which much is likely this product type. However, with values down 40% to 70% across CA where Wells has the greatest exposure, these loan types are likely to perform much closer to Alt-A and Subprime vs. Prime, as they currently have them categorized.

Remember folks, throughout the bubble years Wells considered an ‘A’ paper or “Prime” loan to be a full-doc, 620 score, 95% combined loan to value, Jumbo 5/1 interest only with 50% debt to income ratios. This person could not get financing anywhere today or even six months ago. Much of this is on their best selling 5/1 interest only with initial 5-year rates at 4% to 5.5%.

The second page is their actual rate sheet highlighting the programs and rates as of Nov 2007…yes, they were still doing these then. They still considered these to their ‘Prime” program line. These hybrid ARMs will adjust over the next 5-years to 10-years.

These loans are also anything but “Prime” — especially with values down so much and still crashing. As a consumer with half of your income going out to pay a mortgage on a home that is worth half of its value from two-years ago and that you are upside down in by 35%, what is the fastest way to de-lever? Getting rid of the home and renting for half the price enables you to keep up your lifestyle and get your balance sheet back in line overnight.

On top of Wells $75bb in “Prime” loans they have $84 billion in second mortgages, much of which are also underwater and thereby unsecured given how much values are down. This is the same stuff Bernanke was saying was worth 5 cents on the dollar in his testimony the House a few weeks back.

Lastly, if I remember correctly they had $25B in subprime still, but don’t hold me to that…hey, maybe that is why they have $33 billion in Level 3 “assets” now.  Nevertheless, the third rate sheet is from their Subprime division showing loans for those with as low as 500 credit score – doh!

At my research business, Field Check Group Real Estate & Finance, we track every single loan default, foreclosure, loss severity, etc and categorize them by lender, originator etc. I can assure you that Wells has its share of loan defaults. As a matter of fact, Wachovia’s CA originations are performing better at least in CA. If you are an investment fund looking for in-depth, granular research not available anywhere else, shoot me an email. Sorry guys, had to pay the bills.

Below is Wells Fargo ‘Prime’ ARM program guidelines from 2006. YES, they did Stated Income, interest only etc. See for yourself. VOA = Stated Income/Verification of Assets. SISA = Stated Income/Stated Assets.

Below is form Nov 2007, showing they were still doing these aggressive Stated Income, Interest Only, No Ratio etc when there was no market to sell them into. This means they most likely have this type of portfolio mortgage product on balance sheet.

Below is Wells Fargo’s SUBPRIME rate sheet from 2006 available mostly through their correspondent channel for years. It clearly shows they did loans with as low as 500 scores.

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71 Responses to “Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc”

  1. I was a Wells Retail Subprime mortgage originator for over 3 years. Made a ton of $$. What the public doesn’t know, is that Mortgage Consultants used to “modify” loan packages sent to Underwriting. Because we sent the actual hard file with credit reports, etc. They used white out and modified low credit scores to make borrowers qualify. Until they got smart, and started using Adobe Professional. The underwriters comment, “If the loan package looks legit, then we don’t care.” These people were caught eventually, and just fired. No prosecution, just fired. But Wells Fargo Home Mortgage funded thousands of loans shrouded in fraud.

  2. Awesome documents. I hate dishonest companies.

  3. Alright, someone enlighten me to why hr block hasn’t taken a dirt nap yet…They were wallpapering money all over the country. In some ways they were actually worse than countrywide. As for Toll brothers. Evertime that guy comes on t.v. i enter a short position, works like clockwork. The sad thing about this whole mess, is now solid companies, that acutally create REAL products are getting blistered on a daily basis and alot of the companies who profitted from this collapse are either not moving or going up….sad irony to the whole f-in mess.

  4. Dont even get me going on HR Block. In my opinion they have more pain than anyone yet coming. From 2003-2008 they did $128bb in subprime. Yes they sold as quickly as they could originate but when the subprime secondary market blew up in Nov 2006 through Aug 2007 when they quit doing subprime they originated some $18bb in subprime that if sold would have resulted in major losses. None have been reported. This means they are either a) lying b) are using their off balance sheet trusts to hide this stuff. In addition, the blow back from subprime onto originators has been extreme especially over the last 6 months. The whole loan, MBS investors and mortgage and bond insurers want their money back. They never signed up for what they got. HRB has pain coming for sure. How they have been able to skate so far is beyond me.

  5. we did a lot of buz with Steve Summer out of New Orleans.
    We closed a TON of subprimes with Wells.
    It is a good idea to note that Jack Welch of GE was on CNBC the other morning and he was ripping sub prime.
    I emailed Joe Kernon and told him we closed a ton of loans with WMC – th GE subprime lender and ask Welch
    about it.
    Kernon responded to me in an email but never asked Welch,
    his former boss.

  6. I remeber my friend who used to work for Wells told me those stated programs that Wells were doing.

    Straight to Close (system selected SISA), Quick Close, Minimal Document 5 (SISA), Minimal Document 4 (SIVA), Minimal Doc 3 (VISA), Mortgage Express (borrower select SISA), etc.

  7. Mr Mortgage,

    I know someone that can get to Maria with this information. I’ve put that process in motion this morning.

  8. Maybe there is another answer…

    Don’t confuse ignorance for lying.

    Given how things have gotten so perverse it is not improbable
    that this CEO just doesn’t know what his company is/has done.

    Don’t get me wrong, not making excuses but he wouldn’t be the first.

  9. Mr. Mortgage – YOU ARE WRONG and MISQUOTING
    **************************************************
    You are misquoting Wells Fargo’s CEO. All – go to cnbc.com and read the interview. http://www.cnbc.com/id/27056569/

    Here is what Dick K. said:

    “WE DID NOT MAKE ANY NO DOC, LOW DOC, OPTION ARMS., NEGATIVE AMORTIZATION LOANS, FADED INCOME, TEASER RATE ARMS THROUGH SUBPRIME BORROWERS.”

    Wells Fargo never did option arms or neg. am loans. It’s a fact. Please check your resources Mr. Mortgage

  10. In the quote above (taken from the transcript of Maria’s interview) no doc and low doc were adjectives describing types of option arms and neg am loans… he could have just as easily have left those describing terms out because Wells Fargo did NOT offer option arms or neg am loans period. I’m very disappoited in Mr. Mortgage and will not trust any of his information from here on out.

  11. I work at Wells Fargo and I can tell you that you are all working yourself up into a frenzy over issues and concerns that your don’t fully understand. Here are the facts. 1) We lost enormous market share to our competitors (CFC, WM, WB, Indy, NCC, even BAC) in 2005 and 2006. As a company we made a strategic decision in late 06 to develop new products including some of the risky products that are described above. We did create products that could be classified as subprime and Alt A. You even have documents that show the proof. The problem though with the arguments above is that we were horrible at being competitive in this space. So yes, we did offer subprime loans…and yes we did offer some reduced documentation Alt A fixed and hybrid arm products. But…we didn’t originate very many of them. In fact you should look at your price sheets above and you’ll see that if you compared our price for those products to WAMU or CFC price sheets during the same time period, our prices for those loans were significantly below that of our competitors. So the bottom line is yes we did offer these products but because this was not a strong area for us we struggled and didn’t do much business.

    Furthermore, of the few loans we did originate, most of those risks were packaged in securities and the risk was sold.

    So what about the loans we did originate, believe it or not and fortunately for the security holders out there, the default performance for our retail originated products even to this date are 2 to 3 times better (less delinquent) than subprime and Alt A paper from those guilty parties that are now facing extinction.

    Another fact, we did not offer Option Arm (Neg Am) loans ever. The top management of the bank were strongly against this product. Many at the mortgage company thought it was necessary for competitive purposes, but in the end the product was never created or offered. I say created because if you do research, you will learn that Wells Fargo does not have any capability to service these loans for customers. Call it high standards, or call it a smart business decision to not invest in infrastructure to service negative amortization products….whatever you call it the fact remains that WFC never originated a single pay option arm.

    In summary, I’ll say that Wells Fargo is not perfect but I am proud to work at this company. I do believe that they have higher credit standards, stronger principles, and are highly ethical compared to many of the banks that survive today.

    I would not bet against this company. You should have every right to do so but I promise you from where I sit in this organization, Wells will be extremely successful in the future.

    Good luck to everyone and let’s all hope that we see a better and stronger economy realy soon.

  12. This was posted on a different forum meant for Wells from Michael Bloomquist. Thanks Mike. I agree totally.

    “WELL, I WOULD ARGUE THAT ONE OF THE FEW INSTITUTIONS THAT DID NOT DO THE THINGS THAT OTHERS DID DURING THE EUPHORIC TIMES WAS WELLS FARGO WHICH I THINK WAS WELL DOCUMENTED BY ANALYSTS AND SO FORTH. WE DID NOT MAKE ANY NO DOC, LOW DOC, OPTION ARMS., NEGATIVE AMORTIZATION LOANS, FADED INCOME, TEASER RATE ARMS THROUGH SUBPRIME BORROWERS. NONE. WE LOST 4% MARKET SHARE AND ABOUT $160 BILLION IN ORIGINATIONS IN 2006 ALONE BECAUSE WE DIDN’T DO THAT AND WE’RE THE BENEFICIARIES OF THAT TODAY. I CANNOT IMAGINE WHY THIS HAPPENED OR HOW THIS HAPPENED. IT SHOULD NOT HAVE HAPPENED. IF I HAD TO PICK ONE WORD, I’D PICK GREED.”

    Regardless of what Kovacevich meant to say or our interpretation specifically on option ARMs with Stated income guidelines; he clearly indicated that Wells was an exception. ALL here AGREE that the general state of Wells being an exception was a complete lie.

    Do you work at Wells?”

  13. Stephen, with all due respect WFC was the top player. You lost no market share. You owned the CA, AZ, NV and FL intermediate-term ARM and Second mortgage sectors. You can go here and see you were a top 3 jumbo lender int he nation for many years running. http://www.nationalmortgagenews.com/freedata/?what=jumorig

    You were also a top home equity lender for years shown here. http://www.nationalmortgagenews.com/freedata/?what=secorig

    Total mortgage assets in relation to total assets is enormous compared to your peer banks. You have $84bb in seconds, $75bb in jumbo prime and $25bb in subprime against an asset base of $475bb. Even WB only has $150bb total resi assets against $675bb asset base.

    You did not to Pay Options granted. But 95% CLTV Jumbo Prime interest only with 50 debt to income ratios on borrowers with 620 score is a subprime loan even though you categorize it as Prime. Other than the $84bb in seconds, most of the $75bb Wells mainly holds is 5 through 10-yr paper as well as 30-yr fixed product, mostly Jumbo.

    I don’t have it wrong. WFC is very exposed to the riskiest markets with the riskiest types of loans.

  14. Stephen,

    Well said! You have the facts and I completely agree with you that Wells Fargo will be even more successful in the future due to their past and continued high standards. I’m a huge fan of the company in general – smart smart business…

    Mr. Mortgage (admin),

    You don’t read with a great deal of understanding or you just retain what you chooose… Stephen mentioned very specific years…
    I respect your site but I don’t like the way you “bad mouth” certain companies repeatedly.

  15. I don’t bad mouth unless they lie. Period. I am not the aggressor.

    You will see. If the Treasury starts injecting capital vs buying distressed assets, you will see Wells get honest really quickly to get their piece of the pie. $1 injected turns into $12 in loans.

    You will see this long drawn out period of write downs/capital raises continue for several years.

  16. […] Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc (63) Posted on October 3, 2008 3:59 PM […]

  17. Mr. Mortgage,

    Nice work. The evidence does seem to suggest some latitude with the ‘truth’ on the part of Wells.

    To rebut Stephen conclusively, it would be good to have National Mortgage News rankings for 2005 and 2006 as well. Nevertheless it is noteworthy that in Q1/Q2 2007, Wells was a leading originator by far of Jumbo Residential loans.

  18. Wells Fargo did subprime lending and even had a division called MORE that did the BCD lending. This is ALL very true. But, Wells NEVER went to the extremes that Countywide did…..

    I have worked for both companies. The lending practices of Wells Fargo were much more strict. EVERY bank wrote alt a and subprime loans within the last 5 years. Wall Street and Clinton Administration wanted these loans as they were very profitable and important for first time home buyers/emerging markets.

    Mr. Mortgage has a HARD on for Wells…and that is fine. Wells Fargo is going to be around a lot longer than some tool box named Mr. Mortgage. The Big Red Machine continues to grow and prosper even in this enviornment….

    JOEBLOW

  19. Hello

    I’d like to speak to any mortgage broker or better yet, Wells Fargo executive (past or present) regarding SI/SA no source/no seasoning loans. I’m involved in a prediciment now were Wells Fargo is claiming to be a “victim lender” and has denied these programs exist despite evidence they did.

    Any help is appreciated. I look forward to speaking with you on this.

  20. The Reduced-Paperwork loan is alive and well at wells. I found this on their website this morning!!! They are also offering bank statements to qualify self employed and w2 borrowers. This is the kind of stuff New Century and argent used to do.

    Wells Fargo Mortgage ExpressSM
    Learn More
    866-304-8075
    If you’re a self-employed homebuyer with a steady income, consider convenient, streamlined home financing with Wells Fargo Mortgage Express, our reduced-paperwork option1.
    Wells Fargo Mortgage Express provides the following benefits to eligible borrowers:

    * Convenience. There’s no need to hunt for tax returns, bank statements or pay stubs. Simply state your income and assets on your application.
    * Speed. Your application won’t be delayed by paperwork and we’re usually able to provide an immediate decision.
    * Simplicity. You’ll be in your home faster with a reduced paperwork process.
    * Flexibility. Use this option in combination with a wide range of fixed- and adjustable-rate mortgage products for buying a residence or a vacation home.

    Recommended for:

    * Self-employed homebuyers with good credit

    For more details, please discuss your home financing needs with a Wells Fargo Home Mortgage consultant.
    Spend your time shopping for a home, not applying for financing!

  21. […] Other than Chase, which I find interesting, one of the most interesting aspects of this chart is how Wells Fargo’s originated loans are performing worse than Wachovia’s. This is because the Pay Option ARM implosion (Wach specialized in Pay Options) has not hit in earnest while Wells Fargo’s more Alt-A style lending (5-year, interest only, high-CLTV, stated income) is already seeing default damage.  The same goes for their percentage of overall loan defaults as depicted in figure two below. Last month I posted a lot of info on Wells Fargo – Click HERE for story. […]

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