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Lenders Wells Fargo, Wachovia Curb Mortgage Loans

Published: Friday, 3 Aug 2007 | 5:13 PM ET

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By: Reuters

Wells Fargo, Wachovia and other lenders are limiting mortgages to some of their more creditworthy borrowers as worries about U.S. homeowner defaults widen.

Wells Fargo [WFC Loading... () ], the second-largest U.S. mortgage lender, said it is curtailing issuance of "Alt-A" home loans through brokers, while Wachovia[WB Loading... () ] has stopped entirely. Wachovia also said one lending unit has temporarily halted its Alt-A production.

Lenders are making fewer home loans once thought to be safe because investors now perceive those loans to be risky. The changes could worsen the U.S. housing slump by putting home ownership beyond the reach of a larger number of Americans.

Alt-A loans, short for Alternative-A, fall between prime and subprime in quality. One Alt-A specialist, American Home Mortgage Investment [AHM Loading... () ], is closing on Friday.

The pullback at Wells Fargo is notable because the bank has long prided itself on conservative lending standards. Wells Fargo has also been spared recent market turmoil because it didn't make many of the risky loans that had helped fuel a five-year housing boom, but are now biting lenders back.

"They were much more disciplined on the way up," said Thomas Russo, a principal at Gardner Russo & Gardner in Lancaster, Pennsylvania. "They weren't doing no-documentation, no-income-verification, no-appraisal types of loans. So many 'nos' driving several hundred billions of dollars of loans, and Wells was much less exposed."

Lenders are pulling back amid a lack of buyers for loans they do make. IndyMac Bancorp [IMB Loading... () ] Chief Executive Michael Perry on the lender's Web site called the market for many mortgage-backed securities "very panicked and illiquid," helping push many lenders to quit subprime and Alt-A.

Markets Tighten

Kevin Waetke, a spokesman for Wells Fargo Home Mortgage, said the San Francisco-based bank is making "day-to-day" decisions on making Alt-A loans through brokers.

Wachovia spokesman Don Vecchiarello in an interview said "it's more difficult to sell Alt-A mortgages as financial markets continue to tighten." He said Alt-A loans make up just 2 percent of the Charlotte, North Carolina-based bank's wholesale home loan volume.

Last October, Wachovia paid $24.2 billion for Golden West Financial, an Oakland, Calif.-based mortgage specialist.

Other lenders are taking a wait-and-see approach.

Washington Mutual [WM Loading... () ], which this summer raised its subprime lending standards, reviews the market and credit guidelines daily, spokesman Alan Gulick said.

Bank of America has not changed its product offerings, but constantly assesses them, spokesman Terry Francisco said. The bank does not offer subprime mortgages.

Countrywide Financial [CFC Loading... () ], the largest U.S. mortgage lender, did not immediately return requests for comment. Its stock has fallen about two-fifths this year, though the company says it has enough liquidity to weather the downturn.