Wells Fargo & Co. is eliminating more than 500 jobs in a division that makes home loans to high-risk borrowers, adding to the economic distress caused by the decaying subprime mortgage market.
Most of the cutbacks, concentrated in South Carolina, Arizona and California, stem from Wells Fargo’s recent decision to make it more difficult for borrowers with blemished credit records to qualify for subprime mortgages.
The tougher lending standards means Wells Fargo will be handling fewer subprime mortgages, reducing the need for as much staffing, according to a statement issued late Monday by the San Francisco-based bank.
Wells Fargo spokeswoman Debora Blume declined to specify how many employees work in the bank’s subprime mortgage unit, or what type of jobs would be cut. The bank employs about 158,000 workers through all its operations.
Several other subprime mortgage lenders, including the corporate parent of Ameriquest Mortgage Co., also have been trimming their staffs in response to the recent market turmoil.
Wells Fargo ranks among the nation’s largest subprime mortgage lenders, but so far has been able to avoid major losses.
But other lenders have either already collapsed or are struggling to survive as more subprime borrowers default on exotic mortgages that are graduating to higher interest rates after initially offering extraordinarily low financing terms to make the payments more affordable.
More than two dozen subprime lenders have either closed or gone bankrupt since late last year.
The deepening problems in the subprime sector threaten to ripple through the economy as more workers lose their jobs and more foreclosed homes hit the already slumping real estate market, creating a glut that causes home prices to decline.
Tighter lending standards also threaten to decrease the number of people who can afford to buy a home, another factor that could weigh on housing values.
The subprime worries already have rattled the stock market in recent weeks, leaving investors feeling less wealthy than they did just a few weeks ago.
Wells Fargo’s purge already has wiped out 70 jobs in a Tempe, Ariz. office.
Another 444 workers who received layoff notices last month will leave Wells Fargo during the next few weeks unless the bank can find other positions for them. The upcoming cuts include another 121 positions in Tempe, 252 jobs in Fort Mill, S.C. and 71 jobs in Concord.