Wells Fargo Wholesale Subprime Closes Doors

July 26, 2007 No Comments »

Not surprisingly, Wells Fargo announced today that they were shutting down a portion of their subprime operations, specifically their wholesale lending business that relied on third-party brokers for loan origination.

Wells Fargo will continue to offer subprime loans through its Wells Fargo Home Mortgage and its Wells Fargo Financial unit, but seized operations through the wholesale channel.

Wells Fargo cited “turmoil” and diminishing returns in the subprime industry as reason to exit the fleeting business.

The problems many lenders are facing include foreclosures, defaults, and buybacks from secondary investors who are now scrutinizing mortgage-backed securities much more closely.

The large profit margins many lenders received in the past for selling bundles of subprime mortgages have now become more of a liability, with many lenders selling subprime loans at a loss.

The news comes after Wells Fargo announced that it had stopped offering 2/28 “subprime” adjustable-rate mortgages, which carry a fixed rate for only two years and then rise to much higher rates.

Many other national lenders have eliminated mortgage programs with fixed periods less than five years as a means to temper the mortgage crisis.

It just goes to show that no lender, no matter how big, is exempt from the subprime woes that continue to rattle an entire industry.

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