USDA Prime Only

CNNMoney is reporting Wells Fargo Closes Nonprime Wholesale Lending Business.

Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A., said today that it will close its nonprime wholesale lending business, which processes and funds nonprime loans for third-party mortgage brokers. In 2006, this business represented 1.6 percent of Wells Fargo's total residential mortgage loan volume of $397.6 billion(1).

"Wells Fargo will continue to offer nonprime loans in channels where the company has direct relationships with consumers, including Wells Fargo Home Mortgage's retail channel and Wells Fargo Financial, an affiliate of Wells Fargo Bank, N.A," said Cara Heiden, Wells Fargo Home Mortgage division president. "The decision to close our nonprime wholesale lending business has no effect on Wells Fargo's robust prime lending business which has long held an industry leading position. We will continue to offer prime loans through all our distribution channels, including wholesale."

"For the foreseeable future, we believe continued turmoil in the nonprime sector will result in financial returns for our nonprime wholesale channel that are not commensurate with the risks inherent in this business," Heiden stated. "As a result, we have chosen to discontinue this channel."

Press Release - Alternative Lending Wholesale Division to Close

A Message from Mike Lepore, EVP, Institutional Lending

Continued challenges in the nonprime market have made it impossible to generate acceptable returns that are commensurate with the risks in the Wholesale Alternative Lending business. Because we expect this trend to continue for the foreseeable future, we have made the very difficult decision to discontinue doing nonprime lending in Wholesale, and to focus only on prime lending in this channel.

Effective on Thursday, July 26 at 5 p.m. CT, we will no longer accept new applications through our Wholesale Alternative Lending channel.

Wells Fargo remains committed to making credit accessible to a wide spectrum of consumers, where consistent with our responsible lending practices. We will continue to follow our controlled, profitable growth strategy and sustain our industry leading position by offering nonprime loans through channels that enable direct access to consumers. Prospects for these businesses – which include Wells Fargo Home Mortgage Retail, and Wells Fargo Financial – continue to be promising.

Wells Fargo Email

Following is the email that went out to some mortgage brokers doing business with Wells Fargo.

To all,

It is with deep regret that the decision to close has been made. Thank you for all your support over the past 3 years. If you desire, you may contact me at ****.com [email address removed by Mish]. I hope that I may be able to work with all of you in another capacity sometime in the near future.

Best Regards,

Dave Driscoll
Account Executive
Wells Home
Fargo Mortgage

Some lenders are sure to follow suit and others will tighten lending standards dramatically. In the latter category is JPMorgan / Chase.

JPMorgan / Chase Tightens Lending Standards

JPMorgan / Chase announced Simplified Mortgage Disclosures, Product Choices for Non-Prime Consumers.

Chase today announced it:

• Has developed a new upfront disclosure in a simple format. Consumers now can compare important product features for traditional as well as non-traditional mortgages, including more information on how an adjustable-rate feature can affect the monthly payment
• Will require an initial fixed rate for at least five years on adjustable-rate mortgages for non-prime borrowers to reduce payment shock risk
• Will employ underwriting guidelines that require borrowers to demonstrate their ability to handle increases in interest rates on non-traditional mortgages
• Has tightened credit standards, including making adjustments to acknowledge declining home values in certain markets and reducing the use of high loan-to-value ratios and stated-income products
• Will continue to consider borrowers’ required property tax and homeowners’ insurance payments in determining affordability. Chase offers all its borrowers an option to escrow those payments with Chase
• Will continue its practice of not offering option ARMs, which can expose borrowers to negative amortization when their monthly payment does not cover interest costs

Yield Curve as of 2007-07-26



Chart thanks to Bloomberg.

A yield curve that is increasingly inverted typically is not good for gold, but the runup from $640 to $690 was overdue for a little pullback anyway. The key point is that after a very brief stint in flat to slightly positive territory, the yield curve has inverted once again. This time however it is the 3 year treasury with widest spread. That will not help home buyers one bit.

Fed to the Rescue?

Forget about it. Falling treasury yields will not help anyone that does not qualify with much tighter lending standards. Falling treasury yields will not remotely come close to helping those whose interest rates jumps 200-300 basis points or more. Heck, in spite of a recent treasury rally, 10-year rates are still higher than earlier this year. And, the Fed will not be acting in time to help anyone. It will be too little too late for most.

Anyone with a subprime loan whose rate will reset later this year, is in deep trouble. Pricing pressures on housing are going to get worse, much worse. Anyone who thinks the Fed can save housing is enormously mistaken.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/