Wells Fargo Is Long on the American Dream

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Have you heard what the CEO of Warren Buffett's favorite bank is saying about the housing market? Its more than just words; it's where the bank is putting its money, too!

Wells Fargo (NYSE: WFC  ) CEO John Stumpf has been making the media rounds of late, with the housing market on his mind. Stumpf leaves no question about his viewpoint on the subject; Stumpf, and by extension Wells, think that U.S. housing is back.

Putting your money where your mouth is
"Housing for two-thirds of Americans is still the American Dream. I'm bullish on housing."

This quote puts Wells Fargo's view on housing in no uncertain terms. And Wells' financial statements back up that sentiment. Wells' biggest business is mortgage lending, contributing 26% of total non-interest income in the first quarter. That was the sixth consecutive quarter of mortgage production greater than $100 billion.

Stumpf estimates that the size of the U.S. mortgage market is about $10 trillion, or roughly the equivalent of all the nation's bank deposits combined. Stumpf contends that a market this huge can't exist without both a strong secondary market and some government involvement (probably some tweaked format to Fannie Mae and Freddie Mac). Without the secondary markets and government, banks simply don't have the funding to meet public demand at a reasonable price. Remember Econ 101: The same demand with less supply would lead to higher prices.

"Everyone who touches a mortgage should all be interested in making a good mortgage."

This quote strikes at the heart of the financial crisis. When originators, packagers, ratings agencies, and investors fail to understand -- or, worse yet, even consider -- the underlying credit quality of a loan, the entire system falls apart.

Wells is practicing what it preaches. The bank has $252 billion of first-lien mortgage loans on the books as of the first quarter, which is by far the overall highest concentration on its books. Even with such a large portfolio, delinquent loans -- those more than 30 days past due -- are just 4.9%, compared with 9% at Bank of America, 7.1% at JPMorgan Chase, and 5.9% at Citigroup.

Stumpf has recommended that the government should stop purchasing mortgages outright as it does today. He suggests that a move like that would increase accountability throughout the mortgage-origination process. As an alternative, Stumpf thinks it should offer guarantees on these mortgages. The result would be greater recourse for originators and packagers if the loan goes bad. In this scenario, instead of having the government take the loss, private investors would have incentive to police the system and still have the comfort of the full faith and credit of the U.S. government via a guarantee.

"I think it's about jobs, about confidence, about feeling good about where things are going." 

At the macro level, Stumpf sees the housing market's recovery as a function of a healing jobs market. Because the purchase of a house is so expensive and is generally funded in part with borrowed money, it's logical that households with stable income (i.e,. a job) would be more likely to purchase.

The economics support Stumpf's view. The April jobs report was resoundingly positive, beating expectations by 25,000 jobs and also including robust upward revisions to the February and March reports.

Too often companies will publicly say one thing while doing something entirely different behind closed doors. This is not the case with Wells Fargo. Not only is it in the media talking about a housing recovery, but it's also putting dollars to work investing in one.

Many investors are scared about investing in big banking stocks after the crash, but the sector has one notable stand out. In a sea of mismanaged and dangerous peers, it stands out as The Only Big Bank Built To Last. You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Read/Post Comments (10) | Recommend This Article (4)

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  • Report this Comment On June 02, 2013, at 9:55 PM, ravenrgg wrote:

    Wells Fargo is a great loan ORIGINATOR. They had me refinance last year, then sold my mortgage to Freddie Mac BEFORE I made a payment. They are dumping everything on the government, then having puff pieces like this written to make them look like the good guys.

  • Report this Comment On June 02, 2013, at 10:44 PM, rightnwrong wrote:

    My mortgage was sold to Wells Fargo 6years ago. When I decided to re-fi, it took them 9 mos. to "process" the information and completed it only after I was able to get contact information of a VP in corporate to get help in closing! I found out later that the reason it was taking so long was the bank was attempting to get the highest possible interest rates for the year, even though my rate was supposedly locked in at the time I began loan app. It was a huge fight and I will never deal with them again once my mortgage is up. If you do have any dealings with them keep any and all paperwork (originals if possible) and don't let them put you off when they say they haven't received anything from you after you have sent them information they requested...they are famous for losing things!

  • Report this Comment On June 02, 2013, at 11:33 PM, Fortiss wrote:

    Wells Fargo sucks! I've owned four houses in my lifetime and they are by far the worst bank I have ever done business with. I asked them to modify my mortgage 9 months ago and still haven't received an answer. They have the worst customer service I have ever experienced as well. If you are having trouble paying your mortgage they would rather foreclose on you, rather than take the time and effort to help you. Should have let them close down back in 2008 when they were in trouble and needed help, instead of bailing them out with our tax dollars, they don't appreciate it!

  • Report this Comment On June 03, 2013, at 12:27 AM, oldboldgold wrote:

    Would this be the same Wells Fargo that took a big fine because it illegally repossessed 1.4 million homes... just because WF needed AG to payout on the fraudulent derivatives based on those home loans? Sure enough.

  • Report this Comment On June 03, 2013, at 12:51 AM, Molsman wrote:

    I hate these People wish I could sell my mortgage as easy as how they bought mine same horror stories happened to me like I just read these Fools like any other big banks are a bunch of crook's they do not want to help or work with ya when ya hit bad time's..... Screw Em

  • Report this Comment On June 03, 2013, at 2:16 AM, jimhell666 wrote:

    People you need to boycott this bank they are not Second Amendment friendly so do your mortgage or banking with banks that respect the Constitution Of The United States.

  • Report this Comment On June 03, 2013, at 4:03 AM, MARGARA wrote:

    10 yr loyal customer of WF have purchased 2 homes which I currently still own. Tried to refi my 2nd home, owe less than 90K and got denied. Mind you I only wanted to lower the % rate but I still got denied. Never been late on my monthly payments have good credit and not much debt but I didn't meet there guidelines. I will be taking my business somewhere else.

  • Report this Comment On June 03, 2013, at 6:53 AM, 702bdr wrote:

    I guess Wells Fargo gave up on laundering money for the Mexican Drug Cartel.

  • Report this Comment On June 03, 2013, at 9:34 AM, averagecitizen wrote:

    BS! I tried to re-fi my 6.5 % mortage with them for over a year. They dragged it out asking for more and more information and finally told me "sorry, you are 1% under our income to debt ratio (this is after having me pay $500 out of pocket for an apprasial and paying off what were no interest long term debts all at once to make my "ratio" better.

    Long story short, after that, I went to a broker and got a refi done in less then 2 months (3.7% - Saving me $600 a month!). Broker said I had too much equity in the home so Wells Fargo had no motivation to refi me therefore looked for excuses to keep raping for the higher rate. Not to mention I'm off their escrow system, which they Well Fargo was taking an extra $50 a month for just because they could. I now do my own "escrow" using my own money market and actually get interest on the money until the taxes and insurance are due.

    Wells Fargo SUCKS! I advise everyone to never do business with them.

  • Report this Comment On June 03, 2013, at 10:20 AM, sabebrush6 wrote:

    Wells Fargo and Bank of America ----- watch your back.

    Their "long on dream" is they are dreaming about your bank account.

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