The Crisis Circle Is Complete: Wells Fargo Returns To Subprime

ZeroHedge

Those of our readers focused on the state of the housing market will undoubtedly remember this chart we compiled using the data from the largest mortgage originator in the US, Wells Fargo. In case there is some confusion, as a result of rising interet rates (meaning the Fed is stuck in its attempts to push rates higher), the inability of the US consumer to purchase houses at artificially investor-inflated levels (meaning housing is now merely a hot potato flipfest between institutional investors A and B), and the end of the fourth dead-cat bounce in housing (meaning, well, self-explanatory), the bank’s primary business line – offering mortgages – is cratering.

So what is a bank with a limited target audience for its primary product to do? Why expand the audience of course. And in a move that is very much overdue considering all the other deranged aspects of the centrally-planned New Normal, in which all the mistakes of the last credit bubble are being repeated one after another, Reuters now reports that the California bank “is tiptoeing back into subprime home loans again.“

And so the circle is complete.

For those  who may have forgotten the joys of a subprime lending bubble, here is a reminder from Reuters.

The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks.

 

The small steps from Wells Fargo could amount to a big change for the mortgage market. After the subprime mortgage bust brought the banking system to the brink of collapse in the financial crisis, banks have shied away from making home loans to anyone but the safest of consumers.

 

Any loosening of credit standards could boost housing demand from borrowers who have been forced to sit out the recovery in home prices in the past couple of years, but could also stoke fears that U.S. lenders will make the same mistakes that had triggered the crisis.

And in a world in which the new Wells Fargo is the old Wells Fargo, surely there will be companies willing to be the new New Century. Sure enough:

So far few other big banks seem poised to follow Wells Fargo’s lead, but some smaller companies outside the banking system, such as Citadel Servicing Corp, are already ramping up their subprime lending. To avoid the taint associated with the word “subprime,” lenders are calling their loans “another chance mortgages” or “alternative mortgage programs.”

Also, remember when lenders swore they were very conservative with who they make loans to, and their strict loan standards? Yup: that particular lie is also back.

Lenders say they are much stricter about the loans than before the crisis, when lending standards were so lax that many borrowers did not have to provide any proof of income. Borrowers must often make high down payments and provide detailed information about income, work histories and bill payments. Wells Fargo in recent weeks started targeting customers that can meet strict criteria, including demonstrating their ability to repay the loan and having a documented and reasonable explanation for why their credit scores are subprime.

Uh, there is a reason those borrowers are subprime. And it is: because they traditionally do not pay back their loans! But this appears to be one of those rocket surgery things that a strapped C-Suite has no choice but to confuse as it scrambles to compensate for structural revenue losses, and is willing to boost short-term revenues by offering anyone “who can fog a mirror” a mortgage. Surely, by the time the bank’s balance sheet implodes, it will be some other CEO’s problem.

continue article at ZeroHedge:

http://www.zerohedge.com/news/2014-02-14/crisis-circle-complete-wells-fargo-returns-subprime