Wells Fargo is elevating the bar for new prospects to get a preferred mortgage product, CNBC has realized solely.
The bank is now requiring new clients to convey no less than $1 million in balances if they need to refinance a jumbo mortgage, up from a earlier stage of $250,000, in accordance to folks with information of the coverage.
The change got here in a July 1 overhaul of lending pointers that broadly lowered boundaries to the product for current prospects, whereas making it far tougher for new ones to qualify, mentioned the folks, who declined to be recognized talking concerning the transfer.
The transfer reveals how Wells Fargo, the biggest U.S. mortgage lender, is working below the twin pressures of the coronavirus pandemic and a Federal Reserve cap on its steadiness sheet. While the entire industry has tightened entry to mortgages amid the pandemic, the pullback has been extra pronounced at Wells Fargo, which might’t develop its steadiness sheet thanks to the Fed order, certainly one of a dozen regulatory constraints tied to the bank’s 2016 faux accounts scandal.
In early April, because the bank grappled with the preliminary upheaval attributable to the pandemic, Wells Fargo pulled back from the market for jumbo mortgages, that are loans which can be too huge to be offered to U.S.-backed Fannie Mae and Freddie Mac. The lender mentioned on the time that it could shun riskier loans and solely refinance jumbo mortgages for prospects with no less than $250,000 in balances.
That transfer angered a few of the bank’s mortgage personnel, who had to flip down prospects looking for to benefit from falling mortgage charges.
Demand to refinance house loans has been torrid the previous couple of months, and refinance purposes had been 111% higher than a 12 months in the past, in accordance to the Mortgage Bankers Association’s index this week. Wells Fargo was the largest participant in jumbo mortgages final 12 months, in accordance to analysis agency Inside Mortgage Finance.
In response, bank managers informed their personnel that modifications had been coming that might chill out a few of these restrictions.
Last week, the bank issued an “expansion of guidelines” that did away with the $250,000 requirement for current prospects: People with a Wells Fargo bank or brokerage account of any stage, or those that already had a mortgage with the agency, as of the top of June had been granted entry to jumbo refinances.
“The changes we implemented on July 1 substantially increased the number of borrowers from which we’ll accept applications for non-conforming refinances,” Wells Fargo spokesman Tom Goyda mentioned in an emailed assertion.
But for new prospects, who might beforehand convey $250,000 to the bank if they wished a jumbo refinance, the lender has turn into extra discerning. The $1 million requirement will be glad with a mixture of deposits or funding balances, the folks mentioned.
“They don’t want to take somebody else’s balance sheet and put it in on theirs,” mentioned one of many sources. “We’re very busy and they wanted to slow down the number of loans coming in.”
The modifications come at a tough second for Wells Fargo. Its earnings are below stress due to the pandemic, and the lender is the one U.S. megabank to disclose that it has to cut its dividend because it units apart billions extra for mortgage losses when it studies second-quarter outcomes subsequent week.
The bank additionally tightened lending requirements in its mortgage enterprise within the July 1 overhaul, which probably impacts anybody making use of for a house mortgage, not simply jumbo refinancings, in accordance to one of many folks. For main and secondary house mortgages, the bank lowered by 5% the scale of loans it could approve relative to a property’s worth. For occasion, loan-to-value limits for second properties went from 80% to 75%.
It additionally boosted the amount of money that patrons need to have available after they’ve bought a house, known as a “post-closing liquidity requirement,” from 12 months of bills to 18 months, mentioned the particular person.
And in different areas of the enterprise, the bank continues to be taking precautions. A moratorium on house fairness strains of credit score, that are a preferred method for owners to extract fairness from their house, continues to be in place, mentioned the folks. The bank stopped taking HELOC purposes in late April, CNBC reported at the time.
And the bank has not resumed its third-party mortgage enterprise, the place it purchases jumbo loans underwritten by different banks and credit score unions, the folks mentioned. Wells Fargo shut down that a part of its correspondent lending enterprise in April.