spanish moss

Wells Fargo Earnings: What's Real, What's Not?

Good point, and let's remember Richard Bove's recent commentary that in spite of all the doom and gloom, 97% Home Equity loans are paying as agreed, 98% are paying something. Those borrowers have to live somewhere, not only is it incorrect to assume a complete loss on any given loan, it is wrong to assume a homeowner defaults just because their home's price is currently depressed. WFC loss projections on the Golden West paper were sober and their expanded earnings power will make up any short fall. Remember, these are they guys who didn't offer Option (PIK a Pay) ARMs, they were afraid of them. I reason that WFC's eschewing govt support in their counter offer for WB made them all the more sober. (An aside if I may: What if Citi had gotten WB, the FDIC would probably be broke by now. WFC used it TARP funds, Goldman Sachs sat on theirs and now says they can repay the paultry $10B they got in TARP... what about the $500B+/_ they got in AIG CDS relief??? Good Grief, Goldfinger, stop preening!)


On Apr 14 11:04 PM Russ Krull wrote:

> "..so, let's split the difference and say it is 53% of $95 billion.
> That is roughly $50 billion"
>
> I don't believe you can apply the default rate directly to the value
> of the loans to get a write-off value. Even in default, a mortgage
> is worth more than zero since the property securing the loan has
> some value.
>
> Lets assume the average defaulted loan balance is 150% of the underlying
> property value. That puts the average loss on a loan default at 1/3
> of the asset value. That would put the loan losses from your 53%
> default rate at $16.8 billion.
>
> Disclosure - long WFC.