Proposed home finance reform could restrict Wells Fargo lending

A bipartisan Senate effort to shut down Fannie Mae and Freddie Mac could curtail Wells Fargo & Co.’s enormous home lending business by restricting the bank’s ability to issue certain mortgage-backed securities.

The proposal, spearheaded by Sens. Bob Corker (R.-Tenn) and Mark Warner (D-Va.), has not yet surfaced officially, but this week a trade publication obtained a draft of the legislation.

Fannie and Freddie, the giant government-sponsored buyers and guarantors of mortgages, were bailed out by taxpayers during the financial crisis. They since have returned to profitability and have been repaying the combined $187.5 billion they received from the government.

The Corker-Warner proposal would replace them with a new backer of housing debt, the Federal Mortgage Insurance Corp., as a bridge to creating a fully private mortgage market.

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The provisions aim to stimulate home lending at small banks and credit unions by ensuring they have a strong secondary market that would purchase the loans, Inside Mortgage Finance reported.

No single lender could account for more than 15% of mortgage securities backed by the Federal Mortgage Insurance Corp.

In the first quarter of this year, Wells Fargo accounted for 17.8% of Fannie and Freddie mortgage-backed securities, according to Inside Mortgage Finance. That was down from even bigger market shares for the San Francisco bank after the mortgage meltdown crippled many home lenders.

Wells Fargo, which declined to comment on the report, doesn’t turn all of its home loans into fodder for Fannie and Freddie mortgage bonds, of course.

But when its share of the overall origination market hit 34% a year ago – more than its seven closest rivals combined – it touched off concerns in the government about overconcentration.

Wells Fargo’s executive vice president and chief financial officer, Timothy J. Sloan, said in April that he “wouldn’t be surprised” if the bank’s share of the market dropped to the low 20% range.

“Beyond that I wouldn’t know for sure,” Sloan told the Times.

WFC Net Income Quarterly data by YCharts

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