Wells Fargo has decided to offer fewer mortgage products as the coronavirus-fuelled economic downturn puts increasing pressure on America’s largest mortgage lender’s balance sheet.

The bank will temporarily discontinue several types of loans including cash-out refinance loans, most home equity loans above $250,000, and riskier non-conforming purchase loans.

Any application for those loans will now be automatically declined.

Sources say it has become increasingly harder to underwrite those kinds of loan. Wells Fargo has suspended home interior inspections as social distancing measures have become more prevalent.

Constraints on the balance sheet

The coronavirus pandemic continues to threaten Wells Fargo’s balance sheet, which regulators capped in 2018. The U.S. Federal Reserve restricted the bank’s balance sheet at 2017 levels until it can prove it has the risk management structures which led to the 2016 account fraud scandal.

The scandal was brought about by the creation of millions of fraudulent savings and checking accounts on behalf of Wells Fargo clients without their consent.

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News of the fraud became widely known in late 2016 after various regulatory bodies, including the Consumer Financial Protection Bureau (CFPB), fined the company a combined US$185m as a result of the illegal activity.

The company faced civil and criminal suits, and reached an estimated $2.7bn settlement by the end of 2018.

“Difficult business decisions”

Wells Fargo says the $1.95tn cap is preventing it from meeting the coronavirus-driven customer demand for cash. The get by, the bank is avoiding riskier non-conforming loans with down payments of less than 20% and home equity lines of credit above $500,000.

It is also declining home equity loans above $250,000 on properties worth more than $1m or for 2-4 unit properties.

“These difficult business decisions reflect efforts to prioritize how we serve customers and maintain prudent balance sheet discipline,” spokesman Tom Goyda said. “High-balance conforming loans will be originated only as agency loans and will not be placed on our balance sheet.”