Wells Fargo & Co. is one of the biggest players in the sub-prime lending business -- but you won't find the San Francisco bank on the list of companies torpedoed by soured loans.
Like other big banks and lenders, Wells Fargo's exposure to sub-prime losses is offset by its large portfolio of other loans and businesses. That broader base should enable it and other diversified mortgage companies to continue offering these high-cost loans to borrowers with credit problems or unreliable income, even as other lenders collapse.
"We believe it is very important to offer non-prime loans and are committed to doing so in a responsible way," Wells Fargo spokeswoman Theresa A. Schrettenbrunner said. "Some borrowers simply need a non-prime loan to get started."
Not that Wells Fargo isn't feeling some pain. The company said last week that it had told about 500 workers in its sub-prime operations that they would be laid off unless the bank can find new jobs for them. The downsizing plan came after the company tightened lending standards, leading to a sharp decline in loan volume.
But the woes of the sub-prime industry have barely dented Wells shares, which closed Friday at $34.96, down 1.6% on the year. By comparison, more than two dozen lenders that focused on the sub-prime market have been pushed into bankruptcy, forced to close or sold to other companies.
Shares of New Century Financial Corp. of Irvine, once the nation's largest independent sub-prime lender, have plunged 93.6% this year, closing Friday at $2 in the over-the-counter market.
Wells Fargo has largely escaped such turmoil by taking steps to minimize its risk from defaults, despite the huge volume of sub-prime loans it generates. Last year, Wells helped originate $83.2 billion in sub-prime or alt-A (a category between sub-prime and prime) loans, or 21% of its mortgage production.
But on most of the sub-prime loans, it kept only servicing rights -- the specialized business of collecting payments from high-risk borrowers -- while Wall Street firms wound up with the loans and the risk of losses on missed payments.
In only 8% of its mortgage originations last year did Wells wind up with exposure to credit losses on sub-prime loans, the company said.
Wells was also protected by measures it adopted under pressure from fair-lending advocates.
