Wells Fargo announced that it is shutting down its unit that originates "non-prime portfolio mortgage loans." The bank also said it plans to lay off about 3,800 workers as it closes the Wells Fargo Financial division.
Wells Fargo said in a statement:
Customers with existing Wells Fargo Financial consumer loans and clients of Wells Fargo Financial's commercial businesses will continue to be served without distruption, the company said. FHA home loans, auto loans and credit cards previously offered by Wells Fargo Financial will be consolidated with similar products across the company and will be offered through the company's network of community banking stores, mortgage stores, phone banks and wellsfargo.com. Wells Fargo Financial's commercial businesses will be realigned with business units within Wells Fargo over the next 12 months. However, Wells Fargo will no longer originate non-prime portfolio real estate loans.
Sub-prime mortgage loans have been a huge contributor to problems with the U.S. housing market. Many borrowers who received sub-prime loans have defaulted, while others are in a continuing never-ending battle to avoid foreclosure and keep their homes.
Sub-prime borrowers have flosked to the government's loan modification plan in droves to seek assistance, although many have been unsuccessful in their attempts to get help.
Wells Fargo merged with Wachovia in 2008. In the first quarter of 2010 less than 2% of Wells Fargo's real estate loans originated in Wells Fargo Financial Stores.