Wells Fargo sent out an e-mail to its retail sales force today, notifying them that its Equity Direct guidelines will be experiencing a series of changes amid the ongoing mortgage crisis.
Effective end of business Friday, the maximum debt-to-income ratio for home equity lines of credit and home equity loans will be cut by five percent to 50 percent, an underwriting guideline change that actually matters because most of these loans are now full doc.
In addition, as of July 19, an 185 basis point economic adjuster will be required to qualify a borrower for these types of loans, instead of a typical qualification method based on the fully indexed mortgage rate.
So if a borrower is eligible for a loan at say five percent, an additional 185 basis points will be added on top to serve as the qualification rate, bumping the rate up to 6.85 percent fully amortized in that example.
In “severely distressed” markets such as Orange and Los Angeles County, the max LTV for a home equity line or loan will be a mere 70 percent.
Wells Fargo Equity Direct is also eliminating bridge loan products.
Despite managing to avoid much of the mortgage mess thanks to their conservative lending philosophy, Wells was warned of rising delinquencies within their hefty home equity loan portfolio.