Wells Fargo ends sub-prime loan
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Wells Fargo & Co., the fifth-largest U.S. bank, said Monday that it stopped offering a popular sub-prime mortgage product in response to market and regulatory pressure.
Payments on the discontinued product, known as a 2/28 adjustable-rate mortgage, are based on rates that are fixed for two years and then are adjusted twice a year for the remaining 28.
Other big lenders including Countrywide Financial Corp., Washington Mutual Inc., Merrill Lynch & Co.’s First Franklin and H&R; Block Inc.’s Option One Mortgage have also said they would stop making 2/28s, which accounted for 65% of all sub-prime home loans made in 2006.
Regulators have urged lenders to qualify borrowers based on the highest interest rate a loan could reach after it resets, instead of the low initial rate.
Bonds backed by Wells Fargo sub-prime loans are considered among the best in the industry, although no lender has gone untouched as delinquencies rise and the persistent U.S. housing slump turns investors away from riskier debt.
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