NEW YORK -- Wells Fargo & Co., the second-largest U.S. mortgage lender, said Thursday it will close its nonprime wholesale lending business, which processes and funds loans for third-party brokers, citing turmoil in the market for riskier home loans.
The company will shut operations in Baton Rouge, Louisiana, resulting in a loss of 170 jobs, and in Des Moines, Iowa, where it will seek other positions for 67 affected workers. Wells Fargo 's home mortgage unit is based in Des Moines, while the parent is based in San Francisco.
Wells Fargo , which is also the fifth-largest U.S. bank, said nonprime wholesale lending last year represented 1.6 percent of its $397.6 billion of residential mortgage loan volume. It said it will still offer nonprime loans directly to consumers through its Wells Fargo Home Mortgage and Wells Fargo Financial units.
"For the foreseeable future, we believe continued turmoil in the nonprime sector will result in financial returns for our nonprime wholesale channel that are not commensurate with the risks inherent in this business," said Cara Heiden, president of Wells Fargo Home Mortgage.
Wells Fargo is reducing its exposure to lower-quality loans amid a slumping U.S. housing market in which home prices are stagnating, borrowing costs are rising, and overextended borrowers are defaulting more frequently.
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The bank has said it is less affected by the market turmoil than many lenders because it doesn't make the exotic loans that have caused losses industrywide to mount. In the second quarter mortgage revenue fell just 6 percent to $689 million.
Earlier this week, Wells Fargo said it stopped offering 2/28 "subprime" home loans, which carry low fixed rates for two years and then can float at much higher rates.
Many other lenders have also stopped making such loans, and JPMorgan Chase & Co. and Washington Mutual Inc. stopped making subprime loans with fixed terms shorter than five years.
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