Wells Fargo Alternative Lending Wholesale - Wholesale Subprime

As has become well known in only 24 hours, Wells Fargo has closed down their Alternative Lending Wholesale division, which is their wholesale subprime operations (Retail still operating). Word started trickling in that the closure had been announced internally. Communication was sent that:

Effective on Thursday, July 26 at 5 p.m. CT, we will no longer accept new applications through our Wholesale Alternative Lending channel.

• Loan packages postmarked on or before Thursday, July 26 will be honored.
• Walk-ins will not be accepted as of this announcement.
• All loans must be closed and funded by 5 p.m. CT on August 31, 2007. Files that remain unclosed after August 31 will be returned to the client.

News agencies began reporting on the closure shortly after internal communication had been sent. CNN Money reported:

Wells Fargo & Co.'s (WFC), the nation's second-largest home lender, said Thursday it will stop making subprime mortgages through brokers, in a move aimed at reducing late payments and defaults that have been plaguing the entire mortgage industry.

Many banks sell loans through third-party brokers in addition to their own sales force. Industry data show that mortgage brokers and state-licensed lenders generate about 68% of all residential mortgages in the U.S. In recent months, however, rising delinquencies on mortgages made to less-than-creditworthy borrowers have forced lenders to re-examine their relationships with brokers.

Some lenders have severed ties with brokers deemed as responsible for the chunk of soured loans, while others have been vetting brokers more closely.

Wells Fargo said its subprime "wholesale lending" business accounted for 1.6% of its total residential mortgages of $397.6 billion last year. Cara Heiden, head of the San Francisco bank's home loan unit, said Wells Fargo will continue to offer subprime loans "in channels where the company has direct relationships with consumers."

As part of the move, Wells Fargo will close its subprime wholesale operations in Baton Rouge, La., and Des Moines, Iowa. The move will affect 170 employees in Baton Rouge and 67 in Des Moines.

We note that 1.6% of $397.6 billion is about $6.3 billion.