Wells Fargo has been long-rumored to be suffering from their portfolio of second mortgages/home equity loans. This from TheStreet:
NEW YORK — The biggest cost ahead for large mortgage servicers may not be “robosigning” settlements or buying back bad debt – it’s the follow-on mortgage products like home-equity loans that take longer to go sour.
A report on Monday by CreditSights is the latest sign that the biggest cost to banks from the mortgage crisis could be home-equity loans – whose credit-card-like aspects tend to keep borrowers current long after they’ve maxed out the first mortgage.
CreditSights estimates that Wells Fargo has the most exposure to home-equity costs, at $7.8 billion. JPMorgan Chase is right behind with $7.2 billion, followed by Bank of America at $4.9 billion and Citigroup at $3.6 billion. However, the expected lag in performance has allowed big servicers to prepare for the coming HELOC write-offs.
“Home equity will lag because home equity, by its nature, we find lags the underlying prime and the underlying real estate and lags more than most other things,” JPMorgan CEO Jamie Dimon explained in an earnings call last week. “We try to account for that in our reserving.”
Wells Fargo will be the hardest hit for overall costs of the foreclosure crisis, using CreditSights’ figures, with an $11.2 billion, or $2.13 per share, reduction of earnings on an annualized basis.
Bank of America has the second-highest exposure, at $9 billion, or 90 cents per share, followed by JPMorgan at $8.8 billion, or $2.24 per share. Citi’s much-smaller mortgage servicing division would face costs of $4.2 billion, or 14 cents per share