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Wells Fargo Writes Down Losses from their Prime Portfolio...and you thought this problem was only subprime...

Mortgage and Lending with Diverse Solutions

November 30, 2007 09:58 AM

From the San Francisco Chronicle:

"On Tuesday, Wells Fargo said it will set aside $1.4 billion for home-equity loans it expects to go bad in 2008 and 2009. What it didn't say in its news release was that these are not loans to borrowers with subprime credit scores.

'This was a prime portfolio,' Wells Fargo spokesman Chris Hammond says.

The average FICO credit score for all Wells Fargo home-equity loans is 750, well into prime territory.

The midpoint of all credit scores in America is 723. Only 40 percent of credit scores are 750 or higher. Subprime starts in the mid-600s and goes down from there, according to Fair Isaac, the company behind FICO scores."

OK...so if this is a Prime Portfolio, I'm curious, what kind of Credit Scores are we talking about? Let's look again at the article:

"Wells could not provide the average credit score for the loans it is writing down, but Hammond confirmed it's prime.
What probably made these loans risky was not the credit score, but other features, such as no income documentation and high loan-to-value ratios."

Hmm... Wells Fargo's decision to discontinue their wholesale Equity Lending should come as no surprise. Not more than a year ago one of their flyers read:

"A Guaranteed Home Run With Your Borrowers."

Loan Guidelines Stipulated:

SISA (Stated Income | Stated Assets) - Don't worry, there's no 4506 Request of Transcript of Tax Return Form
740 Minimum FICO
Home Equity Loan up to $200,000 - That's more than double the household income for a year! If it wasn't, you wouldn't be going Stated.
CLTV (combined Loan-to-Value) 100% - Wow! Where do I sign???

It's no wonder Wells Fargo discontinued their wholesale Home Equity Lending! With leniency like this even a Prime Portfolio is bound to suffer. This just goes to show two things, (1) you reap what you sow, and (2) our market correction is far from over!

Point number (2) forces me to bring up another relevant point...amidst news like this here, you'd think that if you're thinking of refinancing, you'd jump on the current market opportunity being provided by our bond market! Rates are low and tomorrow they might be lower...but remember, with lenders cutting out loan programs and Fannie Mae & Freddie Mac tightening guidelines, what good is a low rate if you're kicked out because you don't meet guidelines?

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