Wells Fargo & Co. said it would require more home equity borrowers to verify their incomes, ending a less stringent policy blamed in part for a 35% jump in third-quarter credit losses.
"Stated income" home equity loans will no longer be accepted through independent mortgage brokers as of Tuesday, according to an e-mail San Francisco-based Wells sent to brokers.
The decision by Wells, the second-largest U.S. mortgage lender, follows a similar move this month by JPMorgan Chase & Co., the No. 4 home lender.
Wells Chief Executive John Stumpf said Thursday that its home equity losses were likely to increase in the fourth quarter and remain "elevated" through 2008. Calling the housing market the worst since the Great Depression, Stumpf said Wells wasn't immune to the slowdown.
The company's shift on stated-income loans applies only to mortgage brokers, who accounted for 17% of the bank's $148 billion in home loans made during the first half of 2007, according to industry newsletter Inside Mortgage Finance. Wells' in-house loan officers may continue to offer such mortgages.
For Wells Fargo, "these low-documentation loans were not a big part of their business relative to others, but it was still significant," said Frederick Cannon, an analyst at investment bank KBW Inc.