Market In Review:The Wells Fargo View

Wells Fargo is a strong, sound mortgage lender and servicer. Our business is uniquely positioned

to succeed in today’s challenging market. Here is our insight on current conditions, and how we

will continue to responsibly make loans to customers.

The jury is still out about how long the recovery will take for the

overall financial services industry, but evidence is beginning to

point toward a climb from the bottom for mortgage businesses.

Consumers, investors and analysts waited eagerly in April for

earnings from the top financial services companies. Stronger-

than-expected mortgage performances, including record

applications for some firms, did help to bolster profitability.

•

Wells Fargo, the first out of the gate with pre-announced

results, ignited a market rally by reporting better than

expected net earnings of $3.05 billion or $0.56 per share

and $100 billion in mortgage loan applications.

•

Goldman Sachs reported a profit of $1.81 billion.

•

JPMorgan Chase announced a profit of $2.1 billion.

•

Citigroup delivered a profit of $1.6 billion.

•

Bank of America reported a profit of $4.25 billion.

All eyes remain on the housing sector to see if the slight gain

in April on pending home sales will continue.

The Wells Fargo View: “The best way to generate capital is to

earn it,” said CEO John Stumpf. “This has long been the hall-

mark of our company and we’re now seeing the initial signs

of the earnings and capital-generating power of the combined

Wells Fargo-Wachovia in our first quarter together, serving one

of every three U.S. households.” Wells Fargo extended more

than $225 billion of credit to U.S. taxpayers since last October,

nine times the amount received from U.S. taxpayers through

the U.S. Treasury’s Capital Purchase Program investment.

Several new laws and regulations have been enacted since

the housing crisis began in 2007, with the goal of providing

increased protection to consumers.

These changes may add time to loan closings so lenders can

ensure all the processes have been completed and consumers

have adequate time to review their loan documents. Some of

the final regulations and details have yet to be released.

Specifically, the following will have significant impacts:

The Housing and Economic Recovery Act (HERA) of 2008

Passed on July 30, 2008, it contains the following key reforms:

•

Creation of the Federal Housing Finance Agency to

oversee government-sponsored entities Fannie Mae and

Freddie Mac and the Federal Home Loan Banks.

•

FHA modernization Act of 2008 includes reforms to

streamline and expand the reach of the FHA program

by increasing loan limits and improving access.

•

Secure and Fair Enforcement (SAFE) for Mortgage Licens-

ing Act of 2008 requires all residential mortgage loan

originators to be state-licensed or federally registered.

•

Creation of the Hope for Homeowners program for

consumers who meet eligibility requirements to avoid

foreclosure by refinancing into FHA-backed mortgages.

•

The Mortgage Disclosure Improvement Act effective

July 30, 2009, which changes Truth in Lending Act re-

quirements for early and final disclosures to customers,

addresses the timing of when fees can be charged and

incorporates limits on changes to these charges.

Also enacted in July 2008, the new HOEPA rule amends the

Truth in Lending Act, often referred to as Regulation Z. Chang-

es include creating a category of loans (known as Higher-

Priced Mortgage Loans), new rules governing advertising, and

new consumer protections. These changes are being made to

ensure consumers have clear, written disclosures about finance

charges they can review prior to a credit transaction. Most

provisions are effective Oct. 1, 2009.

Real Estate Settlement Procedures Act (RESPA) Reform

This is often referred to as Regulation X, the rule that imple-

ments RESPA. Changes effective Jan. 1, 2010 will have wide-

spread effects including a new mandatory Good Faith Estimate

(GFE) form and new HUD-1 and HUD-1A settlement forms

that are designed to allow consumers to compare the GFE and

HUD-1 before closing. A new limitation on upfront fees and re-

strictions on how much certain costs can change between the

GFE and settlement (called “tolerances”) also will take effect.

The Wells Fargo View: Wells Fargo will implement the new

laws and regulations by their effective dates. We support rea-

sonable legislation that promotes fair and responsible lending,

and advocate ensuring that regulated and non-regulated mort-

gage companies are held accountable to the same rigorous,

national standards.

While real estate lending is still about helping consumers to

achieve homeownership, certain aspects of the process have

dramatically changed during the past couple of years – and

more change is expected.

Today, borrowers continue to have a variety of loan options and

lenders to choose from when getting a loan. Recently, however,

FHA and Fannie Mae/Freddie Mac lending have dominated

the product mix. As consumers seek a more stable source of

funding and lenders seek a strong secondary market, the FHA’s

share of the U.S. mortgage market has soared to nearly one-third

of loans originated in the fourth quarter of 2008, up from about

2% in 2006 according to Inside Mortgage Finance.

Documentation requirements also have changed as lenders

strive to better ensure that homeowners are able to make their

mortgage payments. And, down payment requirements are

now similar to those of a decade ago with very few consumers

qualifying for loans that require no money down.

All this could lead to the conclusion that lending is tight and

it is difficult for potential homeowners to obtain financing.

However, because of recent house price declines and low inter-

est rates, first-time and recurring homebuyers are able to “get

more house for their dollar.”

The Wells Fargo View: Our long-practiced responsible lend-

ing principles for U.S. residential real estate products – with a

focus on the consumer’s ability to repay – have contributed to

better performance than many competitors. When it comes to

helping consumers as they work to achieve homeownership,

we have a clear goal. Inspire. Educate. Enable.

SM

Wells Fargo & Company is a diversified financial services company with $1.3 trillion in assets, providing banking, insurance, investments, mortgage and consumer finance through more

than 10,400 stores, over 12,000 ATMs and the internet (wellsfargo.com) across North America and internationally. Information is accurate as of date of printing and subject to change

without notice. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2009 Wells Fargo Bank, N.A. All rights reserved