NEW YORK (TheStreet) -- Wells Fargo & Company (WFC) has tasked 400 underwriters to generate mortgage loans for the company to hold, and as much as 40% of those loans could lie outside of government guidelines that go into effect this week.
Bloomberg reports that Wells Fargo is training the underwriters in order to increase its lending while maintaining quality control, according to head of portfolio lending Brad Blackwell. He added that the team will review loans, including those with terms that [as paraphrased by Bloomberg] "preclude them from qualifying for protections provided by the Consumer Financial Protection Bureau, or CFPB, under new rules," as paraphrased
Congress formed the CFPB as part of the Dodd-Frank Act in 2010 in order to create the qualified mortgage rule. This came in response to the widespread blame on banks for helping cause the financial crisis in 2008 by issuing mortgages to people who could not afford them. The aforementioned government regulations offer legal protection to banks that qualify based on certain criteria, but also hold them to legal liabilities if their loans contain high fees or mandate total debt payments that surpass 43% of the borrower's income.
Wells Fargo handled approximately 20% of U.S. mortgages last year and has spearheaded a program for those clients who want more non-traditional loans, such as those that have interest-only payments. Banks are in the midst of their biggest revamping since the Great Depression, so such loans are likely to become more prominent as interest rates rise and, consequently, borrowing demand decreases.
As of 12:25 p.m. ET, the stock moved up 0.13% to $45.98 and Wells Fargo had hit a high of $46.18 for the day at approximately 10 a.m., but hit a low of $45.80 shortly after 11 a.m.
TheStreet Ratings team rates WELLS FARGO & CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate WELLS FARGO & CO (WFC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, expanding profit margins, good cash flow from operations and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 28.44% which was in line with the performance of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, WFC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- WELLS FARGO & CO has improved earnings per share by 12.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WELLS FARGO & CO increased its bottom line by earning $3.36 versus $2.82 in the prior year. This year, the market expects an improvement in earnings ($3.87 versus $3.36).
- The gross profit margin for WELLS FARGO & CO is currently very high, coming in at 94.87%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 25.93% trails the industry average.
- Net operating cash flow has increased to $21,103.00 million or 42.51% when compared to the same quarter last year. Despite an increase in cash flow of 42.51%, WELLS FARGO & CO is still growing at a significantly lower rate than the industry average of 122.21%.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, WELLS FARGO & CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: WFC Ratings Report