Wells Fargo profit rises as loan defaults ease

By 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. The
reason why this is the case is because the losses from bad loans have
steadily been declining. Fewer of their customers have been defaulting
on their loans, as well as being late on their payments of their
mortgages and credit cards. Wells Fargo’s competitors have seen this
trend as well, which is a hopeful sign for the future of the industry
because 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 billion
aside to cover their future losses, which is much less than last year’s
$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 and
consumers. Mortgage applications have reached the second-highest
level in Wells Fargo’s history.
Unfortunately, overall demand for borrowing has not increased
very much. At the end of September, the total amount of loans on the
books decreased to $753.7 billion, which is over $10 billion less than
the previous quarter.
The CEO John Stumpf decided that he would not follow in Bank of
America and JPMorgan Chase’s footsteps in suspending foreclosures.
The rival banks found evidence that thousands of documents were not
properly handled, but Wells Fargo insists that all of their “practices,
procedures, and documentation for both foreclosures and mortgage
securitizations are sound and accurate.”

Foreclosure:
when a lender/creditor legally repossesses collateral for a loan that has
not 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=mcLyTJSHKoX
6lwfy58zVDA&ved=0CBwQkAE

Mortgage securitizations:
Banks create new “companies” that own a certain number of
mortgages and then external investors buy shares in the company for
a slightly higher price than the loaned amount. The bank still does the
administrative work and the investors received the income from the
customers (people who took out the loans). For the investors, this was
a “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/