Because nothing has ever gone wrong with the practice of liberal mortgage lending, Wells Fargo would like to introduce you to a new product it's been working on...
Branded "yourFirstMortgage," Wells Fargo's new product has a minimum down payment of 3 percent for a fixed-rate conventional mortgage of up to $417,000. Down payment help can come from gifts and community-assistance programs. Customers are not required to complete a homebuyer education course, but if they do, they may earn a 1/8 percent interest rate reduction.
Sure, Wells isn't the first bank to try and re-inflate the mortgage bubble or even the first to try the 3% angle, but this is a new wrinkle:
The minimum FICO score for these loans, which are underwritten according to Fannie Mae standards, is 620. Mortgage insurance can either be rolled in to the cost of the loan or purchased separately by the borrower.
620? That's low, bro.
How low? CNBC got a quote from a mortgage finance expert friendly with the industry who said this:
"To the extent that Wells is using this product as liberally as they can, that's a positive for most borrowers," said Guy Cecala, CEO of Inside Mortgage Finance.
Oh, but he wasn't done...
Cecala, however, questions whether any borrower with a 620 FICO score would really qualify for Wells' program. Other programs have that minimum, but the average borrower score on loans actually made is closer to 750.
"I don't know what offsetting factors you have for a 620 credit score with such a low down payment. Unless you require them to have a million dollars in the bank, I'm not sure what else you can do," said Cecala, who notes that a 620 credit score usually denotes someone who has an inability to manage credit. "I think it's problematic to make a loan to borrowers in a subprime credit range with a very low down payment like 3 percent down."
That feels like a logical critique. But Wells is only beholden to shareholders looking for profit, at least we can rely on government agencies to protect the taxpayer from any damage that a mortgage product like this might cause...
Wells Fargo will service the loans, but Fannie Mae will buy them.
There it is.