Wells Dumps Subprime Unit

The big bank will cut some 240 jobs.
Publish date:

Another one bites the dust.

The second largest mortgage lender,

Wells Fargo

(WFC) - Get Report

, is shuttering its subprime mortgage unit. The move comes after the biggest independent lender,

Countrywide Financial


, warned that defaults and delinquencies were creeping beyond subprime into its supposedly better-quality loans.

San Francisco-based Wells said it will shut down its Baton Rouge, La., and Des Moines, Iowa, subprime shops.

"We believe continued turmoil in subprime in the non-prime sector will result in financial returns in our non-prime wholesale channel that are not commensurate with the risks inherent in this business," said the company, in a statement issued to mortgage brokers.

"Investor appetite for the product was different so the returns had started to become diminished," comments Michael Lepore," executive v.p. of institutional lending at Wells Fargo's home mortgage unit.

The mortgage executive explained that the entire subprime industry overall has seen pricing levels paid by investors in subprime fall by 50%.

"We felt there was no immediate end in sight," he adds. "We have not downsized this channel, we have shut it down," Lepore says. He declined to speculate on whether the bank would return to providing an exclusive subprime lending platform in the future.

Wells says it plans to discontinue indefinitely its wholesale alternative lending channel and focus on its prime lending business.

The fifth-largest bank in the country said nonprime wholesale lending last year represented 1.6% of its $397.6 billion of residential mortgage loan volume. It said it will still offer nonprime loans directly to consumers through its Wells Fargo Home Mortgage and Wells Fargo Financial units.

The broker letter says all loans in process must be closed and funded by August 31 or be returned to the client.

Wells Fargo shares were down 86 cents, or 2.5%, to $33.71.