Wells Fargo Curtails Jumbo Loans Amid Market Turmoil
April 04 2020 - 6:31PM
Dow Jones News
By Ben Eisen
Wells Fargo & Co. substantially curtailed its program for
making large loans this week, one of the most pronounced signs yet
of how the recent market turmoil is cutting off access to some
types of mortgages.
America's largest mortgage lender will only refinance jumbo
mortgages for customers who hold at least $250,000 in liquid assets
with the bank, according to a bank spokesman. The change is
effective immediately.
That means that a customer who already has a jumbo loan with
Wells Fargo can't refinance to take advantage of falling rates
unless they keep money with the bank. The bank hasn't changed
policies for loans used to purchase properties.
A jumbo loan is one considered too big to be sold to government
mortgage corporations Fannie Mae and Freddie Mac. In most markets,
it must be larger than $510,400 this year, but in the highest-cost
areas it must be larger than $765,600.
Wells Fargo extended more residential mortgages than any other
lender last year, according to industry-research group Inside
Mortgage Finance. It was also the biggest lender for jumbo loans,
extending some $70 billion of them in 2019.
Conventional loans that are guaranteed by Fannie Mae or Freddie
Mac are still widely available. But loans without government
backing, like jumbo loans, have been harder to come by during the
recent market fluctuations because there has been limited appetite
for investors to buy these loans.
Reflecting this, the average interest rate on a 30-year jumbo
mortgage on Friday was 3.86%, well above the 3.44% on a conforming
mortgage, according to indexes kept by Optimal Blue LLC. These are
typically closely aligned during more normal periods.
Some banks don't sell jumbo loans to investors, but rather keep
them on their balance sheets. Wells Fargo faces limitations on its
ability to do so. Since 2018, the Federal Reserve has capped the
bank's total assets because of risk-management failures tied to its
fake-accounts scandal. That gives it limited flexibility to make
loans that it holds onto.
"These difficult business decisions reflect efforts to
prioritize how we serve customers and maintain prudent balance
sheet discipline," the bank spokesman said Saturday.
The bank also said earlier this week that it would stop
purchasing all jumbo loans made by third-party mortgage bankers.
Its third-party mortgage business, known as correspondent lending,
amounted to about one fifth of its total business in the final
three months of 2019, according to Inside Mortgage Finance.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
April 04, 2020 18:16 ET (22:16 GMT)
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