Wells Fargo is raising the bar for new customers to get a popular mortgage product, CNBC has learned exclusively.
The bank is now requiring new clients to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000, according to people with knowledge of the policy.
The change came in a July 1 overhaul of lending guidelines that broadly lowered barriers to the product for existing customers, while making it far harder for new ones to qualify, said the people, who declined to be identified speaking about the move.
The move shows how Wells Fargo, the largest U.S. mortgage lender, is operating under the dual pressures of the coronavirus pandemic and a Federal Reserve cap on its balance sheet. While the entire industry has tightened access to mortgages amid the pandemic, the pullback has been more pronounced at Wells Fargo, which can't grow its balance sheet thanks to the Fed order, one of a dozen regulatory constraints tied to the bank's 2016 fake accounts scandal.
In early April, as the bank grappled with the initial upheaval caused by the pandemic, Wells Fargo pulled back from the market for jumbo mortgages, which are loans that are too big to be sold to U.S.-backed Fannie Mae and Freddie Mac. The lender said at the time that it would shun riskier loans and only refinance jumbo mortgages for customers with at least $250,000 in balances.
That move angered some of the bank's mortgage personnel, who had to turn down customers seeking to take advantage of falling mortgage rates.
Demand to refinance home loans has been torrid the last few months, and refinance applications were 111% higher than a year ago, according to the Mortgage Bankers Association's index this week. Wells Fargo was the biggest player in jumbo mortgages last year, according to research firm Inside Mortgage Finance.
In response, bank managers told their personnel that changes were coming that would relax some of those restrictions.
Last week, the bank issued an "expansion of guidelines" that did away with the $250,000 requirement for existing customers: People with a Wells Fargo bank or brokerage account of any level, or those who already had a mortgage with the firm, as of the end of June were granted access to jumbo refinances.
"The changes we implemented on July 1 substantially increased the number of borrowers from which we'll accept applications for non-conforming refinances," Wells Fargo spokesman Tom Goyda said in an emailed statement.
But for new customers, who could previously bring $250,000 to the bank if they wanted a jumbo refinance, the lender has become more discerning. The $1 million requirement can be satisfied with a combination of deposits or investment balances, the people said.
"They don't want to take somebody else's balance sheet and put it in on theirs," said one of the sources. "We're very busy and they wanted to slow down the number of loans coming in."
The changes come at a difficult moment for Wells Fargo. Its earnings are under pressure because of the pandemic, and the lender is the only U.S. megabank to disclose that it has to cut its dividend as it sets aside billions more for loan losses when it reports second-quarter results next week.
The bank also tightened lending standards in its mortgage business in the July 1 overhaul, which potentially impacts anyone applying for a home loan, not just jumbo refinancings, according to one of the people. For primary and secondary home mortgages, the bank lowered by 5% the size of loans it would approve relative to a property's value. For instance, loan-to-value limits for second homes went from 80% to 75%.
It also boosted the amount of cash that buyers need to have on hand after they've purchased a home, called a "post-closing liquidity requirement," from 12 months of expenses to 18 months, said the person.
And in other areas of the business, the bank is still taking precautions. A moratorium on home equity lines of credit, which are a popular way for homeowners to extract equity from their home, is still in place, said the people. The bank stopped taking HELOC applications in late April, CNBC reported at the time.
And the bank has not resumed its third-party mortgage business, where it purchases jumbo loans underwritten by other banks and credit unions, the people said. Wells Fargo shut down that part of its correspondent lending business in April.