By Imani Moise
(Reuters) - Wells Fargo & Co (N:WFC), the largest U.S. mortgage lender, is offering fewer home loan products during the coronavirus-fueled economic downturn, a spokesman said on Monday. The bank has paused many kinds of loans including cash-out refinance loans, most home equity loans above $250,000 and riskier non-conforming purchase loans, according to a memo seen by Reuters and confirmed by the company.
Applications for those loan types were automatically turned down as of Friday.
Underwriting some of those loans has become harder, and Wells Fargo suspended home interior inspections last week after governments across the country urged or mandated social distancing, the spokesman said. Some rivals are working around the problem by doing drive-by appraisals or having customers take pictures of properties with their phones, bank sources said.
The change comes as the coronavirus pandemic has put increased pressure on Wells Fargo's balance sheet which has been capped by regulators since 2018. The U.S. Federal Reserve restricted the bank's balance sheet at 2017 levels until it can prove it has the risk management structures which led to the 2016 sales practices scandal.
Up to now, the bank has been operating with room under its $1.95 trillion dollar cap, but amid tense demand for cash, Wells Fargo has said the cap is preventing it from helping customers and lending more.
The bank is shunning riskier non-conforming loans with downpayments of less than 20% and home equity lines of credit above $500,000, according to the memo. Home equity loans above $250,000 on properties worth more than $1 million or for 2-4 unit properties are being declined.
Wells Fargo is the largest U.S. mortgage lender, originating $201 billion in 2019, according to Inside Mortgage Finance.
"These difficult business decisions reflect efforts to prioritize how we serve customers and maintain prudent balance sheet discipline," spokesman Tom Goyda said.
"High-balance conforming loans will be originated only as agency loans and will not be placed on our balance sheet."
Conventional loans guaranteed by agencies like Fannie Mae or Freddie Mac move quickly off a bank's balance sheet as they are packaged into mortgage securities to be sold to investors. But non-conforming loans with smaller downpayments and large home equity lines of credit are considered riskier and may stay on the bank's books.
The bank has also stopped buying non-conforming loans from third parties and will only accept jumbo refinancing applications from customers with at least $250,000 at the bank, the spokesman said.