Current Event: Week of 12/22.

“Wells Fargo Opposes Banks on Mortgage-Risk”
Lorraine Woellert
December 11, 2010

This article describes the recent acts of Wells Fargo, America’s largest mortgage company. The bank argued against efforts to exempt new mortgages from the Dodd-Frank Act provision that required the creators of the loan to keep a stake in the debt sold or securitized. Wells Fargo brought about the idea, in a letter, for mortgages that have down payments of 30 percent or more to be exempt form the provision. These “risk-retention” rules would raise costs and cause Wells Fargo to a permanent leading position for mortgage loans and also permanently close out smaller banks and loan offices from the business. Their letter and ideas brought the attention of the Federal Reserve, which are one of six regulators who must decide which loans are to be exempt by April. The “risk-retention” rules were added to the Dodd-Frank Act and then became a law in July. They were created in hopes of stopping lenders from creating the high-risk mortgages that brought about the worst financial crisis in the U.S. since the Great Depression. The provision is supposed to reduce risk for the people who are involved with the loans, and the Federal Reserve believes to exempt as few loans as possible to achieve this goal. The article concludes that the exemption of these loans will freeze capital and bring higher interest rates. The main issues right now are the attempts to decide what will determine a low-risk mortgage and what new mortgages will be exempt.

I thought this article was informative, though at times hard to follow. I believe that, with the information included with this article, the decision constituting exemption of mortgages is not ready to be made. Though I do not fully understand what mortgages require to be exempt. This article has brought new issues to my attention that I had not previously understood or was aware of. To make a full educated opinion on the state of mortgage exemptions I will have to do more research on the topic and what ideas are being proposed.

Original Article:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/12/11/BU1C1GOP3J.DTL#loopbegin