Wells Fargo tightens mortgage guidelines
Thursday February 28, 10:42 am ET
In a move that could have far-reaching ramifications for home buyers in the Golden State and elsewhere, Wells Fargo & Co. is tightening its mortgage lending guidelines in more than 200 markets across the country, including Los Angeles County, that it has labeled severely distressed or distressed.
The tougher lending standards take effect Feb. 29 and were distributed on the Internet after Wells Fargo sent a document on Feb. 25 to mortgage brokers.
Wells, the second-largest U.S. mortgage lender, has been moving since last June to reduce its mortgage banking risk. Over the second half of 2007 it introduced tighter credit standards and eliminated certain mortgage distribution channels. In September, the bank introduced the "At Risk" market policy, which reduced maximum loan-to-value ratios for all outstanding loans against a property based on local market conditions. The loan-to-value ratio represents the amount of a first mortgage lien compared with the appraised value of a home.
The new guidelines were introduced as a result of changing market conditions, the bank said, and are a further indication of the depth of turmoil in the housing market across the country -- not just in foreclosure hot spots such as California and Michigan. Earlier this month, mortgage insurer PMI Group Inc., which is based in Walnut Creek, tightened guidelines for the mortgage loans it insures, virtually eliminating very high (above 97 percent) loan to value ratio loans.
Wells' new guidelines adjust the list of markets it considers soft, distressed or severely distressed. It has ratcheted down the maximum amount of loans it will make in relation to the value of a property, which means home buyers will need to put more money down. In markets considered severely distressed, for example, it will not make a loan for more than 75 percent of the value of the home.
Twenty counties in California, including Los Angeles County and Orange County, are on the severely distressed markets list. At-risk markets around the country include 33 in Florida, 15 each in Michigan and Virginia, and 13 each in Maryland and Ohio. Many other states, including Arizona, Colorado, Connecticut, Louisiana, Massachusetts, Minnesota, New York, Nevada, New Jersey, Washington and Wisconsin had markets on the list.
"We have adjusted pricing -- often on a day-to-day basis -- on some products as a result of decreased demand in the capital markets," Jason Menke, a Wells Fargo spokesman, said in an e-mail. "As we prioritize our liquidity, pricing for consumers who deal with us directly (i.e., at a retail bank branch) may be more favorable than pricing for consumers who come to us through brokers and correspondents."
Menke declined to comment further on any potential differences in credit policies between the bank's retail distribution network and its correspondent and broker channels.
Wells' mortgage originations during the fourth quarter declined to $56 billion, down $12 billion compared with the third quarter and down $14 billion compared with the fourth quarter of 2006. Howard Atkins, chief financial officer, on a January earnings call attributed the declines to the tightened standards and a general reduction in demand for loans. The banks carried $71 billion in first mortgages on its balance sheet at year-end.
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