In response to deteriorating conditions in the subprime market, Wells Fargo Home Mortgage said late yesterday that it has tightened its underwriting criteria for HTLV, high debt-to-income, low credit score and low doc mortgage loans, effective February 16. The change in lending criteria will impact subprime origination volume going forward, according to a memo from Lynn Greenwood, senior vice president of communications over the company’s home and consumer finance group, and will drive roughly 320 layoffs at the company’s mortgage operation. The Charlotte Observer first reported on this story yesterday afternoon, noting that the company will lay off 250 employees in its Fort Mill, South Carolina-based location. Additional layoffs will be at the company’s Concord, Calif.-based location. “We believe this change is the right decision for consumers, our business and investors,” said Greenwood.
Greenwood also said the company will be looking to put laid off employees into positions elseweher in the company. “Wells Fargo is committed to treating team members respectfully. Hiring managers will give special consideration to internal job seekers who want to stay with Wells Fargo. Most affected team members also receive a 60-day notice, and are offered separation benefits that include insurance and salary continuation based on years of service with the company.” Wells’ change in its subprime business comes as the company has been under increasing media scrutiny for its “co-issued” mortgage loans, which the company has traditionally reported as part of its origination volume. Doing so ranked the company as the nation’s largest subprime lender according to many industry sources, including reports issued by the Mortgage Bankers Association, and led many in the media to speculate that the bank’s exposure to subprime might be a possible tripping point for the financial giant. The company has since said it will alter its approach to reporting originations, excluding “co-issue” loans from its numbers. In recent weeks, numerous Wells officials have stressed in public interviews that the company’s “co-issued” loans only provide Wells with servicing rights, and that company is not exposed to repurchase risk as a result of co-issuance. (The company is still, however, exposed to numerous risks associated with servicing subprime mortgages.) Repurchase risk has become a driving factor behind financial difficulties at numerous subprime originators as of late, with New Century, Accredited Home Lenders, and NovaStar — three of the nation’s largest subprime loan originators — reporting signficant losses as a result of repurchase claims and associated loan impairments.