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Biggest Lender at Odds With Industry Over Risk Retention

The largest originator of residential loans in the country is calling for more risk retention by U.S. lenders — a position directly at odds with real estate finance trade groups.

Last year, the Mortgage Bankers Association joined several other groups — including the Consumer Mortgage Coalition, the Community Mortgage Lenders of America and the National Association of Home Builders — in issuing a letter to senior members of the U.S. House of Representatives Committee on Rules. The groups predicted dire consequences from skin-in-the-game requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act — which was subsequently signed into law in July.

The associations warned that as drafted, the legislation “would force some lenders out of business” and restrict the ability of all institutions to make loans.

The groups alternatively proposed “risk-retention requirements based on the level of risk with a clear distinction for safe, sound and simple mortgages.”

But Wells Fargo & Co. disagrees.

Risk retention is a good idea,” Wells Fargo Home Mortgage Executive Vice President John Gibbons was quoted as saying by the Financial Times. “Rather than being something rare or unusual, it should be common in the mortgage industry to align interests of lenders, borrowers and investors.”

The U.K. news publication went on to say that Wells Fargo sent a letter to regulators during November calling for the retention of most loans where the borrowers have made less than a 30 percent down payment.

With $259 billion in residential originations so far this year and $420 billion funded during 2009 — Wells is the biggest U.S. home lender.

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