Higher mortgage rates have been wreaking havoc on borrowers for about a year now. Rates began rising sharply in early 2022 and continued on that path the entire year.
But it’s not just borrowers who are feeling the strain. Ever since the Federal Reserve began aggressively raising its benchmark interest rate in 2022 in an effort to cool inflation, financial institutions like Wells Fargo have felt the impact too. And with borrowing rates now up across the board across a range of loan products (not just mortgages), a lot of lenders are starting to struggle, especially as demand begins to wane.
That’s just one reason Wells Fargo has announced its decision to step back from the housing market. Going forward, instead of offering mortgages to as many applicants as possible, the financial giant will instead focus its efforts on mortgages for existing bank and wealth management customers. It also intends to focus on borrowers in minority communities.
Not the best news for consumers
The fact that Wells Fargo is pulling out of the general mortgage market isn’t the best news for consumers. One thing mortgage borrowers have going for them during periods of both high and low home loan demand is competition.
Simply put, the more mortgage lenders there are out there, the more options borrowers have to shop around for competitive rates and closing costs. But when big names like Wells Fargo pull out of the mortgage lending arena, it limits consumers’ choices.
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Following the 2008 housing crisis, a number of big-name lenders took a similar approach to what Wells Fargo is doing now. And so while mortgage borrowers still have a nice array of choices, if more financial institutions follow Wells Fargo’s lead, that lender pool could dwindle. As a result, consumers could, down the line, get stuck with higher borrowing costs due to a lack of choices.
Snagging an affordable mortgage today
Right now, mortgages are far from affordable. Quite the contrary — borrowers are looking at more than twice the rates they likely would’ve locked in a year ago.
That said, consumers with strong credit are more likely to wind up on the receiving end of more attractive rate offers. So those whose credit scores need work would be wise to try to boost those numbers before shopping around for a mortgage.
It takes a minimum credit score of 620 to qualify for a conventional mortgage. But many lenders insist on a higher number, which they have the right to do. And consumers with scores in the upper 700s or above are most likely to snag the lowest mortgage rates available.
Of course, at a time when it’s become so difficult to keep up with living expenses and credit card debt, many consumers may be seeing their credit scores drop instead of rise. But a recent credit score drop should, if anything, be an indication that now’s not a great time to be buying a home. After all, if big names like Wells Fargo don’t even want to be in the mortgage lending business anymore, that certainly says something about today’s market and borrowing environment.
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