Wells Fargo says goodbye to 2/28 ARMs

Wells Fargo, the fifth-largest bank in the U.S., has stopped offering 2/28 adjustable-rate mortgages effective Monday. The so-called 2/28 ARMs are in fact a hybrid product featuring a fixed interest rate for the first 2 years of the loan which then begins to adjust. This move is prompted by massive downgrades of subprime bonds by rating agencies in the past 2 weeks. Countrywide Financial Corp., Washington Mutual Inc., First Franklin and Option One Mortgage have already stopped offering the product.

Meanwhile Standard & Poor’s announced that it’s placing $1.76 billion in asset-backed securities on CreditWatch with negative implications. S & P said it is continuing its review of CDO ratings, so more downgrades are possible in the near future.