Wells Fargo Remains Mostly Uneffected by the Subprime Woes

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Wells Fargo Remains Mostly Uneffected by the Subprime Woes

Wells Fargo remains healthy in the midst of many struggling lenders since they avoided many of the high-risk loans offered in the subprime market. From Reuters, Wells Fargo spared subprime turmoil:

NEW YORK (Reuters) - Wells Fargo & Co. (WFC.N: Quote, Profile, Research) has largely escaped the turmoil that has felled dozens of U.S. mortgage lenders. Its chief financial officer said it's because the second-largest U.S. home loan provider never made the types of high-risk loans that got others in trouble in the first place.

Since late last year, some 99 U.S. mortgage lenders have "imploded," according to the Web site http://ml-implode.com, as stagnating home prices, rising interest rates, and a surge in borrower defaults caused many lenders to retrench, seek buyers, or fold. Several, such as New Century Financial Corp (NEWCQ.PK: Quote, Profile, Research), have sought bankruptcy protection.

Easy credit was a big cause of the problem. Borrowers happily took out home loans with low initial "teaser rates," or "negative amortization" loans and "option" adjustable-rate mortgages that let them pay less than the principal and interest due. Many were "subprime" borrowers with weak or poor credit histories.

Monthly payments on $1.2 trillion of adjustable-rate mortgages (ARMs) are slated to reset higher in 2007 and 2008, according to Bank of America research.

"We simply haven't offered those products to our subprime customers," Wells Fargo CFO Howard Atkins said in an interview. "The principal product we have is a debt-consolidation loan. We don't offer products where consumers would become stretched by higher interest rates."

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