Anonymous in NC

Talk Me Down From the Wells Fargo Ledge

WF was originally a part of the talks with Citi and the FDIC when it decided to exit those talks and let Citi have it for 2 billion dollars - about $1 per share. Then, a week or so later, WF skulks in behind the backs of the FDIC and Citi, pitches to Wachovia privately and ups the anty to 15 BILLION DOLLARS (making the purchase price of the stocks about $7 per share) with NO government assistance - and then the 2 of them announce that they have signed a binding contract! ... Well, I certainly hope that people have been streaming into WF branches to deposit boatloads of money, because it appears to me that they desperately need it (especially after this). If they didn't, why would they be so desperate to buy Wachovia for SEVEN TIMES the amount Citi was, especially when they were involved in the talks to begin with? However, that in and of itself isnt the biggest problem I see, because the upside is that Wachovia is large; Wachovia does have a very strong presence in the Southeast and as such, gives them a large footprint without having to come in an "build" anything. ... What really bothers me is this (in additoin to the above): Where is Wells based, where do they have a large number of HOME LOANS (firsts and seconds) and where are property values among the deepest in decline and therefore posing the greatest percieved threat(s) of foreclosure? That would be California (as their base), Nevada and Arizona (as part of their footprint) and Florida (as a conduit). Because, WF is licensed to lend in all 50 states and as such, bought numerous loans on the secondary market through their corresponent and wholesale channels in states like FLORIDA (and evey other state that it has those relationships in, of which there are MANY). Beyond that, what appears to have caused the Wachovia meltdown is the perception about all of the bad loans (Pay Option Arms) it holds (many of which were acquired with the Golden West acqusition and many of which Wachovia continued to originate in this area, until VERY recently) - which are exactly the type of loans WF has been hanging their hat on NOT having in their portfolio! So, given all of that, I think WF is just about as risky as any of the other big banks right now. Because, unless WF can somehow convince the governemnt to change the SEC write-down rules before it all hits the fan for them, there is every chance that WF could join WAMU and Lehman, both of whom were considered relatively solid and had been around for just as long, if not longer, than Wells.

Banks Using Leverage to Force Home Equity Repayments

Its a bank's right to refuse to subordinate an existing HELOC to a new first mortgage. But, you can't automatically assume that someone is refinancing a first mortgage because they can't handle the current mortgage payment. People refinance for all kinds of reasons, including that one. Sometimes, they are just restructiring their personal debt, getting equity out (in the form of a long term, stable debt) to send their kids to college, or simply taking advantage of a better rate or term than what they've got on their current mortgage - and the banks dont have to have any reason or justification, whatsover, to refuse to subordinate an existing HELOC to a new mortgage. This is what the WSJ article eludes to - that its happening to people who would normally be considered "well qualified" to have them resubordinated. That, in an of itself, suggests that these are not people who are incapable of making their current mortgage payment.

Frankly, this WSJ article just illustrates a small example of what concerns me about the economimc stimulus package, the FNMA/FHLMC and FHA initiatives to help with this and that, ongoing rate cuts by the Fed that make it more attractive for banks to lend to consumers and so forth. None of these things force the banks - who are notoriously greedy - to go ahead and do, anything. They just make it more profitable to do so, when and if they decide to cooperate ... I mean, the fact that consumers who have HELOCS that are tied to Prime Rate have had their rates (and subsequently, their payments) go down over the last several months, is nothing more than the result of the terms of those HELOC(s) being tied to it. Its not a reflection or illustration of a the banks' generosity, concern and goodwill toward the consumer, in a time where we are facing a possible recession and in the midst of dealing with a consistently weakening dollar.