Wells Fargo & Co., the second-biggest U.S. mortgage lender, raised the credit requirements for customers to secure home loans amid what some bankers have called the worst housing slump since the Great Depression.
Starting today, higher credit scores are needed for loans that cover 95% or more of a home's value, the San Francisco bank said in a May 16 report to clients. The company also eliminated some cash-out refinancings for customers with loans that represent more than 80% of the price.
Wells Fargo, the biggest bank on the West Coast, is implementing the changes a month after reporting an 11% drop in first-quarter net income because of loans that won't be fully repaid.
Still, the company was profitable, unlike some of its competitors. Washington Mutual Inc. lost money from sub-prime mortgages, home loans given to consumers with the weakest credit. Wells Fargo said it didn't offer those loans.
More than 100 lenders have been forced to halt operations, shut down or sell themselves since the beginning of last year as slumping home prices led to rising foreclosures and delinquencies. Home prices fell again in the first quarter, dropping 3.1% from a year earlier, according to a report from the Office of Federal Housing Enterprise Oversight.
Wells Fargo said the changes were the result of mortgage insurers altering their requirements and pricing. Loans must be locked in today by 6 p.m. Pacific Daylight Time or will be subject to higher prices, the company said. Loans must close by June 30.
Countrywide Financial Corp. is the nation's biggest mortgage lender. The collapse of the sub-prime market has led to $2.5 billion in losses over nine months at the Calabasas-based company, which agreed in January to be bought by Bank of America Corp.
Wells Fargo shares rose 21 cents to $27.91. The stock has dropped 7.5% this year, compared with a 14% decline for the Standard & Poor's 500 financials index.