Industry News

Wells Fargo tightens home equity loan standards

$1.4 billion on losses expected on high-LTV loans

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Wells Fargo & Co. said it is tightening underwriting standards on home equity loans as it takes a $1.4 billion fourth-quarter write-down on loans originated through wholesale and correspondent channels. The San Francisco-based bank said it will no longer originate home equity loans through wholesalers when the combined loan-to-value ratio of first and second mortgages exceeds 90 percent or when Wells Fargo is not the holder of the first mortgage. Wells Fargo officials said they are placing loans that don't meet those criteria -- and all home equity loans acquired through correspondent channels -- into a "special liquidating portfolio," which is expected to rack up $1 billion in losses in 2008 and 2009. The losses "are expected to diminish over time as the loans are resolved or repaid," and fall within fourth-quarter loss provisions. Loans in the $11.9 billion liquidating portfolio -- about 3 percent of all loans outstanding as of Sept. 30 -- "are largely concentrate...