SAN FRANCISCO–Wells Fargo plans to introduce a mortgage for borrowers who can make only a minimal down payment, which will allow it to back away from a FHA program.
The Wall Street Journal reported the bank is making the move at a time when many large banks are exciting from any substantial role making loans guaranteed by the FHA. Banks have sought to avoid the FHA in the wake of numerous lawsuits by the Justice Department that alleged poor underwriting.
Wells Fargo made $6.3-billion in FHA-backed loans during 2015.
Under its new program, Wells Fargo will allow borrowers with credit scores as low as 620 to make down payments of as little as 3%, while also allowing them to use income from family members or renters to qualify, according to the Wall Street Journal.
“The requirements don’t represent a significant expansion of mortgage access, but will allow Wells Fargo to make more loans to low- and middle-income borrowers without going through the FHA,” the Journal reported.
The program is being launched in conjunction with Fannie Mae.
A number of other large banks, including Bank of America, have also introduced low down-payment mortgages. In that program, The Self-Help Ventures Fund, which is aligned with Self-Help Credit Union in Durham, N.C., agreed to absorb some losses in the event a borrower defaults, to reduce the cost of that product. Self-Help said the Bank of America product is on pace to make between $300 million and $500 million in mortgages within the first year, the Journal reported.