Industry News

Wells Fargo stops making 2/28 ARM loans

Countrywide, WaMu, First Franklin, Option One concur

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Wells Fargo Home Mortgage says it's discontinuing its subprime 2/28 and one-year adjustable-rate mortgages (ARMs) in response to new guidance from federal regulators and downgrades on subprime bonds by ratings agencies. The 2/28 mortgage is an adjustable-rate mortgage on which the rate is fixed for two years and then reset to equal the value of a rate index at that time, plus a margin. Because the margins are high, the rate on most 2/28s will often rise sharply at the two-year mark, even if market rates do not change during the period, according to mortgage analyst Jack Guttentag.  In a statement issued Monday, Wells Fargo said it "routinely assesses its loan products, terms and prices, and is changing how it offers select subprime products." Wells Fargo said that in its third-party subprime lending channel, the 1-year ARM, the 2/28 ARM and the 40/30 2-year ARM were discontinued July 18. Wells Fargo's retail business line stopped offering the 1-year ARM, the 2/28 ARM and th...