| Wells Fargo to absorb $1.4B provision in 4Q for losses on loans
Wells Fargo & Co. is absorbing $1.4 billion in losses on home equity loans that borrowers have stopped repaying amid a deepening real estate slump that's turned into a financial sinkhole. Until Wells Fargo disclosed its projected losses late Tuesday, the San Francisco-based bank had suffered relatively little damage in a mortgage meltdown that had already battered other major U.S. lenders. "Clearly, this is a disappointment because (Wells) had been seen as better managers of credit than many other big banks," said RBC Capital Markets analyst Joseph Morford. "But now they have a big blemish on them, too." After gaining 34 cents to finish at $29.83 in Tuesday's regular session, Wells Fargo shares plunged $1.40, or 4.7 percent, in the extended trading that followed a Securities and Exchange Commission filing outlining the bank's home equity loan losses.
Home equity loan avoids fees of refinancing mortgage
Q. I would like to refinance my adjustable-rate mortgage to lock in one of today's low rates. But I don't want to pay a lot of fees for a new mortgage that would actually make my monthly payments bigger over the next year. Refinancing would cost thousands, which seems like an awful lot for a loan of only about $80,000. What should I do? A. You might consider a home equity loan instead of an ordinary mortgage. Many home equity loans are unusually attractive now. Yours is a dilemma that confronts many homeowners with adjustable mortgages, or ARMs: They may be happy with the low interest rates they're paying today - in many cases only 4 percent or so - but they worry their rates will rise in the future. It would be nice to lock into a low fixed rate, but refinancing fees can total thousands.
The darker side of interest rate cuts
The move had the effect of reducing rates on mortgages and home equity loans, and reassured investors that the Fed will do what it can to spur economic activity as long as the threat of recession looms. But as much as Fed Chairman Ben Bernanke might like to keep the economy rolling by slashing interest rates, it's not clear how much room he'll have to do so. Two factors complicate the outlook for further interest-rate cuts: the hefty losses in the financial sector that are making banks less eager to lend money, and the prospect that lower rates will chase overseas investors away from the dollar, lowering the value of the greenback and boosting inflation. Adding to the case against deep rate cuts is the widespread perception that it was the Fed's rate-cutting zealousness after the last recession that led to the housing bubble that now threatens to derail the economy.
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