8/8/2019 Lawrence Financial Writing

1/2

Wells Fargo profit rises as loan defaults easeBy Palavi Gogoi and Stephen Bernard

Summary:Although Wells Fargo & Co. has been under scrutiny due to the

foreclosure mess that created great disorder in the banking industry,their profit has increased by 19% in its third quarter income. Thereason why this is the case is because the losses from bad loans havesteadily been declining. Fewer of their customers have been defaultingon their loans, as well as being late on their payments of theirmortgages and credit cards. Wells Fargos competitors have seen thistrend as well, which is a hopeful sign for the future of the industrybecause it is showing more stability financially.

In the third quarter, losses from bad loans were down 20%, at$4.1 billion, from third quarter in 2009. They are setting $3.45 billionaside to cover their future losses, which is much less than last years

$6.11 billion.In addition to the losses from bad loans decreasing, Well Fargo

has also seen a 17% increase in new loans to businesses andconsumers. Mortgage applications have reached the second-highestlevel in Wells Fargos history.

Unfortunately, overall demand for borrowing has not increasedvery much. At the end of September, the total amount of loans on thebooks decreased to $753.7 billion, which is over $10 billion less thanthe previous quarter.

The CEO John Stumpf decided that he would not follow in Bank ofAmerica and JPMorgan Chases footsteps in suspending foreclosures.

The rival banks found evidence that thousands of documents were notproperly handled, but Wells Fargo insists that all of their practices,procedures, and documentation for both foreclosures and mortgagesecuritizations are sound and accurate.

Foreclosure:when a lender/creditor legally repossesses collateral for a loan that hasnot been paid and is in default

http://www.google.com/search?

hl=en&client=safari&rls=en&defl=en&q=define:foreclosure&sa=X&ei=mcLyTJSHKoX6lwfy58zVDA&ved=0CBwQkAE

Mortgage securitizations:Banks create new companies that own a certain number ofmortgages and then external investors buy shares in the company fora slightly higher price than the loaned amount. The bank still does theadministrative work and the investors received the income from the

8/8/2019 Lawrence Financial Writing

2/2

customers (people who took out the loans). For the investors, this wasa liquid asset (they could sell off shares as they please).

http://markharrison.wordpress.com/2007/11/26/what-is-mortgage-securitisation-anyway-and-does-it-

matter-it-did-to-northern-rock/