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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