Wells Fargo Seems Exposed To Upcoming Mortgage Crisis, Analyst Says


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Wells Fargo appears exposed to an upcoming mortgage crisis.

Photograph by Maximillian Conacher

Banks are on the verge of having a mortgage problem in their hands, and a troubled bank could be particularly at risk.

With the unemployment rate rises and other workers are on leave or face lower wages, banks expect many borrowers to have difficulty making payments. Though there is government initiatives in place to help borrowers and mortgage service providers, there is no denying that the industry will have struggling loans when the world finds itself on the other side of the coronavirus pandemic.

More recently, Ginnie Mae announced on Friday that he was launching a Pass-Through Assistance Program (PTAP) to help mortgage managers avoid a cash flow crisis when borrowers miss payments. The program, a “last resort” option, will allow managers to pay principal and interest to bondholders. Ginnie Mae is a US agency that guarantees more than $ 2 trillion in mortgage-backed securities.

This “demonstrates that regulators are very focused on providing funding to mortgage managers to support the significant increase in forbearances and delinquencies that is expected,” wrote Bose George, analyst at Keefe, Bruyette & Woods, in a commentary. Sunday note.

Ginnie Mae’s move comes as $ 2.2 trillion relief package signed on Friday gives borrowers up to a year of forbearance for missed payments. Although banks are offering forbearance, they will see a slight decline in profits and cash flow during this period and beyond, as not all customers are expected to recover at the end of the forbearance period. .

“Banks will have to work with borrowers who need help or a loan modification – this would lead to write-downs on retained loans and higher spending on serviced loans,” Vivek Juneja, analyst at


Chase organ (ticker: JPM), wrote in a note Monday, adding that

Wells fargo

(WFC) with a 12.6% market share in mortgage loan management, will be particularly affected. JPMorgan itself has a 6.8% share, and

Bank of America

(BAC) has a 3.9% share.

“Wells Fargo works daily to ensure that we put measures in place to meet the needs of our customers affected by COVID-19 in the most effective manner,” the bank said in a statement emailed to Barron’s.

Juneja expects banks to see only a ‘modest impact’ during the forbearance period, but the situation becomes less certain after the period ends as banks will see an increase in loan management costs. . With unemployment set to remain high, after forbearance ends, service charges could impact 2020 earnings by 0.1% to 0.8%.

“Banks need to work with these borrowers to restructure loans, and loans that are foreclosed will lead to a greater increase in spending,” Juneja wrote.

Write to Carleton English at [email protected]

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