MORTGAGE UPDATE:

Lending update courtesy of MS&C Mortgage,
an affiliate of Wells Fargo

Market in Review: The Wells Fargo View

Mixed News About Housing - Time To Buy Or Not?

News has been mixed about the housing market, making it difficult for consumers to cut through the clutter. Have we hit the bottom yet:  

The answer is different across geographies because markets that encountered the largest home price increases in the past currently are experiencing the greatest correction. In contrast, other markets may experience appreciation gains.

One thing is certain: we won’t know the “bottom of the market” has occurred until it has passed. And, we know the media will hype the housing correction well beyond the realities of the market. For evidence, search online for late 1990s top newspaper articles that led consumers to believe housing would never be a worthwhile investment again. The potential buyers who believed the hype missed the millions of equity gains in the 2000s.

There are many facts that suggest the current market is simply not as bad as it feels. Homeownership remains the single most effective way to build individual wealth. According to the National Association of Realtors®, the average homeowner has 46 times the net worth of a renter.

For qualified consumers in some markets, the combination of lower home prices, abundant housing supplies and relatively low interest rates provides compelling reasons to purchase a first or second home now. The map below represents U.S. real estate price trends. 

The Wells Fargo View: Consumers should consult a trusted financial advisor for guidance about their market’s economic conditions, and find a lender – like Wells Fargo – that is committed to treating consumers fairly and responsibly throughout the entire process.

Helping Consumers While Balancing Investor Interests

Recently proposed legislation is heavily focused on protecting consumers – a goal that Wells Fargo shares. We also share the conviction that in order for consumers across the credit spectrum to continue to gain access to homeownership, respect for investors also must be considered in any new regulation or legislation. The challenges in helping at-risk consumers today are centered on maintaining this important balance, as it has serious implications for consumers in the long-run.

Mortgages are often pooled together and sold to investors around the world. The funding created through these investments is then passed on to consumers in the form of access to more loans at market-competitive prices. If investors don’t feel they can rely on the risk ratings associated with mortgage loan pools, they will invest where the risk is more certain. This would hamper the funding available for homeowner purchases, and ultimately, would drive rates higher.

There are a number of issues under consideration that create cause for concern, in this regard. In April, for instance, the U.S. Senate debated but failed to pass a measure that would have empowered bankruptcy judges to reduce loan amounts owed by distressed borrowers. This measure would have placed the right to modify mortgage contracts in the hands of judges and removed any input or decision-making from the hands of investors and servicers – thereby making the risk of an individual loan very uncertain. This bill is now being revisited. It has passed the Senate Judiciary Committee, and could return to the Senate floor for consideration.

On the flip side, the government recently announced measures that help consumers without adversely impacting investors. As part of the government’s efforts to stabilize the market for mortgage-backed assets and protect consumers, it has eased restrictions for Fannie Mae and Freddie Mac allowing them to add $200 billion in immediate liquidity to the secondary mortgage market. Fannie and Freddie are now able to do more business with mortgage lenders including purchasing jumbo loans, ultimately providing opportunities for more qualified consumers.

Other measures are being considered by the House and Senate to boost the housing market and ease the threats caused by foreclosures. For example, a U.S. Senate bill includes incentives such as a tax credit for people who buy foreclosed properties and $4 billion grants for communities to buy and renovate abandoned homes. A comprehensive mortgage and housing package is under development in the House, including a voluntary, temporary program that would facilitate refinancing at-risk mortgages into a new FHA-insured loan. The outcomes of this legislative activity are yet to be determined.

The Wells Fargo View: Wells Fargo conducts its business with full respect for both our customers’ and investors’ needs. This practice has enabled our company to remain successful and committed to reliably and responsibly making mortgages available to consumers across the credit spectrum. We take a long-term view of these issues to remain a strong leader in the mortgage business.

Averting Foreclosures And Protecting Communities

Lenders, nonprofit organizations and government agencies are assisting consumers with homeownership preservation. While there is no “silver bullet” to solve all issues, the cumulative result of several initiatives has helped millions of Americans avert foreclosure.

These efforts include case-by-case solutions provided by mortgage servicers, as well as streamlined solutions for consumers with similar credit characteristics, introduced through efforts like the HOPE NOW alliance.

HOPE NOW harnesses the strengths of mortgage servicers, counselors, the capital markets and the U.S. government to help at-risk consumers get budget guidance that considers all of their debt. Its toll-free hotline, (888) 995-HOPE, administered through the Homeownership Preservation Foundation puts homeowners in direct contact with counselors who can get them on the right path to saving their home.

Through Wells Fargo’s efforts and our affiliation with HOPE NOW, we have been able to impact the number of at-risk consumers who respond to our outreach efforts and have helped the majority find solutions to avert foreclosure.

The Wells Fargo View: Lenders should educate consumers and help people at-risk to explore the options available to them. Our efforts include continual outreach with one-on-one customer discussions, as well as countless group education efforts focused on credit management. This summer, we will expand our unique Steps to SuccessSM program to first-time homebuyers and FHA customers across the credit spectrum. It provides customers with financial education and the tools necessary to make money management routine and effective.

Wells Fargo & Company is a diversified financial services company with $575 billion in assets, providing banking, insurance, investments, mortgage and consumer finance to more than 23 million customers from almost 6,000 stores and the internet (wellsfargo.com) across North America and elsewhere internationally. Wells Fargo Bank, N.A. is the only bank in the U.S., and one of two banks worldwide, to have the highest possible credit rating from both Moody's Investors Service, "AAA," and Standard & Poor's Ratings Services, "AAA." Information is accurate as of date of printing and subject to change without notice. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2008 Wells Fargo Bank, N.A. All rights reserved.