Will Wells Fargo (WFC) Stock Be Helped By Easing Jumbo Mortgage Standards?

NEW YORK (TheStreet) -- Shares of Wells Fargo & Co.  (WFC) are up 0.70% to $50.40 after the bank said it relaxed its standards for loans for some high-priced homes as the largest U.S. mortgage lender tries to combat an industry-wide drop in mortgage volumes, Reuters reports.

The bank eased its lending standards on mortgages it acquires from other banks, according to a spokesman, for "jumbo" loans that are too large to receive a guarantee from government-backed mortgage companies.

In late July, the bank lowered the minimum credit score on these fixed-rate jumbo mortgages to 700 from 720, the bank said.

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Credit scores are between 300 and 850, and levels below 640 are often considered subprime.

The lower requirements for jumbo loans are the latest effort by Wells and other banks to loosen mortgage criteria that are still tight by historical standards, Reuters said.
 
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, increase in net income, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Commercial Banks industry average. The net income increased by 3.8% when compared to the same quarter one year prior, going from $5,519.00 million to $5,726.00 million.
  • WELLS FARGO & CO's earnings per share improvement from the most recent quarter was slightly positive. 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 $3.89 versus $3.36 in the prior year. This year, the market expects an improvement in earnings ($4.12 versus $3.89).
  • The gross profit margin for WELLS FARGO & CO is currently very high, coming in at 94.48%. 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 25.94% trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.2%. Since the same quarter one year prior, revenues slightly dropped by 1.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: WFC Ratings Report

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