Wells Fargo dips toe into RMBS for first time in a decade

by Ryan Smith08 Oct 2018

Wells Fargo is dipping its toe back into the mortgage-bond market for the first time in a decade.

The company is working on a $441 million residential mortgage-backed security without government guarantee. The bond has a AAA rating, and its sale is likely to be finalized this week, according to a Nasdaq report.

Prior to the 2008 financial crisis, Wells Fargo was one of the top RMBS lenders, selling more than $1 trillion worth of mortgages in both 2005 and 2006. But with shoddy subprime mortgage-backed securities contributing to the financial meltdown in 2008, investors fled the instruments in droves.

Shoddy RMBS practices were added to Wells Fargo’s already-long list of scandals in August, when the bank agreed to pay a penalty of about $2 billion to the Department of Justice for allegedly misrepresenting the quality of its mortgage bonds during the run-up to the financial crisis.

Now, after a long time in the financial wilderness, mortgage bonds are coming back into favor, Nasdaq reported. The private RMBS market has reached a post-crisis high of $75 billion so far this year, and there are no indications that demand is ebbing.

Wells Fargo, however, still faces challenges. A federal regulator recently expressed dissatisfaction about the bank’s progress in measuring the financial harm it caused to customers who were charged for unnecessary auto insurance, and Wells Fargo’s CEO, Tim Sloan, and its chairwoman, Betsy Duke, are likely to be called before Congress soon to testify about the bank’s performance over the last year, Nasdaq reported.