Lending in a Financial Reform WorldGreg ScagliottiArea Sales Manager

Wells Fargo Home Mortgage

April 29th, 2014

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Financial Reform

It’s the law.

— Affects every customer who applies for credit, uses a bank or buys insurance

— Zero discretion: you don’t get to choose what rules to follow or not follow

— Mortgage rules apply to all home-loan lenders

Ability to Repay/Qualified Mortgage

Basic directive: before closing a loan, make a reasonable and good faith determination that the customer can repaythe debt.

• At Wells Fargo, applies to loan applications taken on or after Dec. 7, 2013

• Lenders have no latitude to adjust or waive documentation requirements. Documentation guidelines must be followed exactly.

Ability to Repay

A highlight of the new rules includes an ability-to-repay standard:

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Borrowers must provide—lenders must verify information documenting that the borrower

can afford the loan they are receiving.

• Before a loan can be approved, borrowers must prove they have sufficient assets or income to repay their mortgage or home equity loan

• Documentation MUST be retained in the loan file to show ability to repay was validated

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Ability to Repay A reasonable , good-faith ability-to-repay evaluation must

include these eight underwriting criteria:

1. Current or reasonable expected income or assets that the customer will use to repay the loan

2. Current employment status

3. Credit history

4. Monthly mortgage payment-calculated using the fully-indexed rate and the monthly, fully amortizing payment

5. Monthly payments on simultaneous loans associated with the property

6. Monthly payments for other mortgage-related obligations, such as property taxes

7. Other debt obligations, alimony and child-support

8. Monthly debt payment, including he mortgage, compared to monthly income—the debt-to-income ratio or DTI.

Because we’re required to verify information that shows a borrower can afford the loan they are receiving, we are expected to fully document his or her ability to replay.

Qualified Mortgage DefinedProduct feature restrictions

Loans with terms greater than 30 years Balloon loans and negative amortization loans Interest-only loans If an ARM, must use the maximum rate that’s applicable for the first five years in

assessing income ratios

Underwriting requirements Permanent method: Total DTI ratio is less than or equal to 43 percent as defined by

Appendix Q of the final rule

Temporary alternative: Loan meets requirements of—and eligible to be purchased, guaranteed or insured by (1) GSEs or (2) HUD, Dept. of Veterans Affairs, Department of Agriculture or Rural Housing Service

Documentation: Full documentation is required and based on existing FHA full-doc requirements

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