Lender announces changes to fees, terms
By MortgageDaily.com staff
8/30/2005

Wells Fargo is making changes to its nonprime lending programs including capping originations fees, reducing prepayment penalties and shunning mandatory arbitration.

The banking behemoth announced Tuesday the changes, which include moving to a flat maximum limit for origination fees on retail nonprime loans, will apply to Wells Fargo Financial and Wells Fargo Home Mortgage subsidiaries Home Credit Solutions and Alternative Lending.

"These improvements are part of our continuing efforts to respond to our customers' evolving needs by introducing new practices, aligning key policies and articulating in more detail our guiding principles to help our customers succeed financially," said Mark Oman, senior executive vice president for Wells Fargo's Home and Consumer Finance Group. "These changes build on the work we've done, such as publishing our principles for nonprime real estate lending last year, to help us improve the way we serve our customers."

The new flat origination fee structure will limit origination fees to a maximum of $1,500 for any Wells retail mortgage, according to the announcement. Additionally, borrowers will be able to "buy down" their mortgage's interest rate by paying bona fide discount points.

For borrowers who wish to have a prepayment fee option on their nonprime loan, the San Francisco-based company is capping the prepayment fee at 3% of the loan amount in year one of the loan, which would lower to 2% in year two and 1% in the third year to the extent allowed by law. Loans with prepayment fee options that are refinanced through a Wells retail channel will have the fee waived after 12 months of doing so.

Also, to be consistent with prime-lending at Wells Fargo Home Mortgage, the loans of Wells Fargo Financial will no longer include mandatory arbitration clauses, according to the announcement.

Amongst key policies that will be aligned across these two businesses are policies for making certain that prime pricing is offered to all customers whose are eligible for it, and revising Wells' guiding principles for responsible nonprime lending that were expanded to nine earlier this year, which include full disclosure of loan pricing and providing consumers with the information they need to make a fully informed decision on their mortgage, the announcement said.

"Wells Fargo is firmly committed to helping the millions of Americans who, for whatever reasons, have not been able to qualify for traditional prime real estate loans," said Oman. "We want to be a leader in the industry by doing so responsibly. These changes, which are under way and expected to be completed before year-end, are further evidence of our commitment."

Wells has suffered a series of attacks over its subprime practices.

ACORN, or the Association of Community Organization for Reform Now, said it determined in a study of Wells' refinance loans in 42 metropolitan areas that there was "a huge racial and economic disparity between the company's prime mortgage lending and its higher-cost subprime lending." The organization has been campaigning against Wells since May 2003.

Earlier this month, attorneys filed a case against the mortgage lender alleging Wells systematically discriminated against borrowers in predominantly African-American and Hispanic neighborhoods by denying them the benefits of its loan origination computer program, Loan Economics. The plaintiffs in that case seek class action certification.

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