Wells' Imploding Loan Portfolio

Tyler Durden's picture

The fine folks over at WLMLab Bank Loan Performance have done a great job at updating FDIC loan data by various banks. Some of their conclusions:

Yet the most significant observations is the ticking time bomb that is Wells Fargo's 1-4 Family 90+ past due loans.

WFC's Construction & Development portfolio is also on the verge of implosion.

Conveniently, these loans are low on Non-Accrual rates, meaning that net interest income is not currently affected (and leading to a falsely high EPS number), yet once everything hits the fan, the bank will be forced to charge off a staggering amount of debt at much higher principal amounts. Perhaps any and all rumors about WFC's viability should be evaluated very carefully going forward.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Anonymous's picture

Was this due to them taking on all of Wachovia's trash?

Anonymous's picture

They were compensated for taking that trash.

Less than 15% delinquent? Wake me when it gets to 60%.

orange juice's picture

I'm sure that added to the onslaught but if you look at the quarter by quarter analysis it doesn't really indicate anything extraordinary in terms of % change, obviously 08Q3 was bad. I think that universally it was bad and it would be hard to draw a direct line..... obviously the number of loans increases (because of the takeover) but the percent change isn't significantly higher.


Of material interest is the things that aren't being shown like the low delinquency rates for the Commercial loans and Home Equity loans (as an example of items we aren't seeing yet).  I would think that with such a high rate of delinquency you would have correspondingly higher delinquency rates in HELOC's or CRE.

Anonymous's picture

IIRC, didn't Wells re-define their delinquent loans as well? I think a few months back to make things appear "not as bad" they re-defined a delinquent loan from one that was 90 days past due to one that was 180 past due. As if re-defining the term is going to solve the problem.

Anonymous's picture

So, let's say Wells implodes. What happens to those people living in their homes who have defaulted. My BIL has been living in his AZ for 9 months (after he stopped paying his home mortgage). If the mortgage is will Wells, what's the chance they just "write off" these mortgages and the BIL gets to live there forever, for free? Kind of like a Kato in OJ's guest house.

Anonymous's picture

If the (politically) impossible happens and WFC goes BK, then eventually someone would buy the rights to that mortgage, but who knows how long it could take to get the rights all sorted out. Bottom line is the lender has the right to possess your BIL's house, so someone at some point would buy that right, even if it's for 50 cents on the dollar or less.

Kelly's picture

Silly wabbit, tricks are for banks.

bonddude's picture

Thought i just read a judge in Fla is allowing mbs holders to foreclose. Anyone?

Anonymous's picture

I belive no stats to back it up but great info there are over 10000 homes in vegas where he people have been living in homes without sending a payment for 6 months or more. This housing crisis is only just getting started!

3greenlights's picture

Tell your BIL that Arizona HR 1271, which goes into effect Sept 30th, empowers the lender to send a T-1000 Terminator to collect. No more "toss the house keys to Ken Lewis and walk."




Anonymous's picture

Well that would depend on if they even know that a person quit paying their loans. I have heard stories of people trying to buy a forclosed home and the bank or investment company that supposedly owns the bank cannot even find any documentation that they are the owner. This is after the potential buyer has already done the leg work in trying to find the owner.

Rusty Shorts's picture






                                 First National Bank of Montgomery,                                              Plaintiff                                    vs                                Jerome Daly,                                        Defendant


The above entitled action came on before the Court and a Jury of 12 on December 7, 1968 at 10:00 am.   Plaintiff appeared by its President Lawrence V. Morgan and was represented by its Counsel, R. Mellby. Defendant appeared on his own behalf.

A Jury of Talesmen were called, impaneled and sworn to try the issues in the Case. Lawrence V. Morgan was the only witness called for Plaintiff and Defendant testified as the only witness in his own behalf.

Plaintiff brought this as a Common Law action for the recovery of the possession of Lot 19 Fairview Beach, Scott County, Minn. Plaintiff claimed title to the Real Property in question by foreclosure of a Note and Mortgage Deed dated May 8, 1964 which Plaintiff claimed was in default at the time foreclosure proceedings were started.

Defendant appeared and answered that the Plaintiff created the money and credit upon its own books by bookkeeping entry as the consideration for the Note and Mortgage of May 8, 1964 and alleged failure of the consideration for the Mortgage Deed and alleged that the Sheriff's sale passed no title to plaintiff.

The issues tried to the Jury were whether there was a lawful consideration and whether Defendant had waived his rights to complain about the consideration having paid on the Note for almost 3 years.

Mr. Morgan admitted that all of the money or credit which was used as a consideration was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneapolis, another private Bank, further that he knew of no United States Statute or Law that gave the Plaintiff the authority to do this. Plaintiff further claimed that Defendant by using the ledger book created credit and by paying on the Note and Mortgage waived any right to complain about the Consideration and that the Defendant was estopped from doing so.

At 12:15 on December 7, 1968 the Jury returned a unanimous verdict for the Defendant.

Now therefore, by virtue of the authority vested in me pursuant to the Declaration of Independence, the Northwest Ordinance of 1787, the Constitution of United States and the Constitution and the laws of the State of Minnesota not inconsistent therewith ;


1.That the Plaintiff is not entitled to recover the possession of Lot 19, Fairview Beach, Scott County, Minnesota according to the Plat thereof on file in the Register of Deeds office.

2.That because of failure of a lawful consideration the Note and Mortgage dated May 8, 1964 are null and void.

3.That the Sheriff's sale of the above described premises held on June 26, 1967 is null and void, of no effect.

4.That the Plaintiff has no right title or interest in said premises or lien thereon as is above described.

5.That any provision in the Minnesota Constitution and any Minnesota Statute binding the jurisdiction of this Court is repugnant to the Constitution of the United States and to the Bill of Rights of the Minnesota Constitution and is null and void and that this Court has jurisdiction to render complete Justice in this Cause.

The following memorandum and any supplementary memorandum made and filed by this Court in support of this Judgment is hereby made a part hereof by reference.


Dated December 9, 1968


Credit River Township

Scott County, Minnesota


The issues in this case were simple. There was no material dispute of the facts for the Jury to resolve.

Plaintiff admitted that it, in combination with the Federal Reserve Bank of Minneapolis, which are for all practical purposes, because of their interlocking activity and practices, and both being Banking Institutions Incorporated under the Laws of the United States, are in the Law to be treated as one and the same Bank, did create the entire $14,000.00 in money or credit upon its own books by bookkeeping entry. That this was the Consideration used to support the Note dated May 8, 1964 and the Mortgage of the same date. The money and credit first came into existence when they created it. Mr. Morgan admitted that no United States Law Statute existed which gave him the right to do this. A lawful consideration must exist and be tendered to support the Note. See Ansheuser-Busch Brewing Company v. Emma Mason, 44 Minn. 318, 46 N.W. 558.   The Jury found that there was no consideration and I agree.   Only God can create something of value out of nothing.

Even if Defendant could be charged with waiver or estoppel as a matter of Law this is no defense to the Plaintiff. The Law leaves wrongdoers where it finds them. See sections 50, 51 and 52 of Am Jur 2nd "Actions" on page 584 – "no action will lie to recover on a claim based upon, or in any manner depending upon, a fraudulent, illegal, or immoral transaction or contract to which Plaintiff was a party."

Plaintiff's act of creating credit is not authorized by the Constitution and Laws of the United States, is unconstitutional and void, and is not a lawful consideration in the eyes of the Law to support any thing or upon which any lawful right can be built.

Nothing in the Constitution of the United States limits the jurisdiction of this Court, which is one of original Jurisdiction with right of trial by Jury guaranteed. This is a Common Law action. Minnesota cannot limit or impair the power of this Court to render Complete Justice between the parties.  Any provisions in the Constitution and laws of Minnesota which attempt to do so is repugnant to the Constitution of the United States and void.  No question as to the Jurisdiction of this Court was raised by either party at the trial. Both parties were given complete liberty to submit any and all facts to the Jury, at least in so far as they saw fit.

No complaint was made by Plaintiff that Plaintiff did not receive a fair trial. From the admissions made by Mr. Morgan the path of duty was direct and clear for the Jury.  Their Verdict could not reasonably been otherwise. Justice was rendered completely and without denial, promptly and without delay, freely and without purchase, conformable to the laws in this Court of December 7, 1968.


   December 9, 1968

Justice Martin V. Mahoney

Credit River Township

Scott County, Minnesota.

Anonymous's picture

Kato is STILL there?

who knew...

George the baby crusher's picture

If he didn't have to pay you would start the whole contactual obligation collapse.  Human society is based on contactual obligations. ei. Marriage, divorce, social contracts and of course your financial obligation. In other words, another lender would take over your friends loan so that he can continue to honor his obligations and society can continue and the whole world rotates another day.

Arm's picture

No chance of a write-off.  The loans go to the estate of the bank in foreclosure.  The creditors will forclose on him

ToNYC's picture

Your point is as short-sighted as a Geithner solution. There will be liens that will be saisfied or sued for and a successor creditor if need be will pick up that property at a discount and get clean title. Kato ain't living in OJ's for years. He had all the staying power of a pet whose master has departed.

John Self's picture

I don't know.  Sure, he's not living there forever.  But every month that passes, the BIL should be saving the amount that he'd otherwise be paying on his mortgage.  9 months so far, hell, that'd be a nice chunk of change.  If he has the discipline to save it (and probably not if he got into that situation in the first place), he could conceivably save enough to buy a decent new place in cash before the banks get their act together.

Moral?  Maybe, maybe not.  I wouldn't do it, but maybe others could make it fit with their moral code.  Regardless, I don't think the point was really about staying put forever.

Anonymous's picture

What will force these guys to take the writeoff? It seems like accounting does not exist any more and all they get to put on their quarterly reports are checking account fees accrued.

I have heard that year-end auditors will not accept this under reserved capital position on these "held to maturity" mortgages and loans. Do you have any insight whether we will finally see some real accounting at year end because these auditors do not want to go to jail for fraud like the CEOs of these banks?

deadhead's picture

as I understand it, the amendments earlier this year in re FASB FAS 157 ("mark to market") gave accounting firms significantly more protection in covering their asses when reviewing what a bank says its assets are worth.  Frankly, you will not see "real accounting" prior to the end of this year.

ghostfaceinvestah's picture

See my note below - they already did write a lot of this off with a purchase adjustment.  JPM did the same thing with the WM portfolio.

Veteran's picture

Same shit different day. Those dumb fucks (TurboTax Timmy, Heli Ben, Neck Fat Summers, and the Messiah), could have paid off every mortgage in America. . . 

MsCreant's picture

Amen. I junk whoever junked you.

Missing_Link's picture

Let me play devil's advocate.

Wouldn't that just be rewarding failure?  It's bad enough that we had to bail out failed banks; do we really have to bail out failed homeowners too?

Why bail out the Jamaican immigrant who was in the middle of flipping 5 condos in NYC when the subprime collapse happened?

I bought a home well within my budget.  Why should my tax dollars pay for those who didn't?

Anonymous's picture

Should not have "bailed" anyone out, but instead given a 5-10 year guarantee on 20% of the value of the loan. Kind of like a parent co-signing on a loan, but with very strict conditions to be met. The point would be to weed out those who could NEVER make the payments anyway (your Jamaican friend ;-)) and help ONLY those who legitimately bought a house to live in, and can make the payments as long as the rates are low (which they are now.) So govt gives security for 20% of loan value, bank EATS 20% of loan value and homeowner continues to make payments and live in house responsibly. This would have saved the homeowners who deserved ANY help at all, and banks that deserved ANY help at all, and wiped out the irresponsible and the frauds.

Then in 5-10 yrs if the economy can recover decently enough the homes might return to near the loan value. If that happens, the homeowner can sell, repay the govt its 20%, the bank whatever they wrote off and then keep whatever proceeds remain. Bear in mind "government" = taxpayers, we are the ones who are cosigning the loan, and we get first dibs on any money from the proceeds. This would have helped Main Street, and Wall Street and kept moral hazard at a minimum. One way or another moral hazard was a risk given what had happened, but by taking this action we would have minimized it. And you tax dollars would have helped stabilize the economy, just as they would have been used to help victims of a hurricane or earthquake, and in this case in addition to the economic stability and goodwill, the US taxpayers might also have got some return on investment at some point.

Anonymous's picture

um, because one way or another you're going to pay. Sure it sucks, but yay, it's part of our "civilized society" (read: the super happy fun place where J6P gets ass-raped on a regular basis).

gooooood times

Anonymous's picture

YES. NONE of them deserve a bailout. N-O-N-E.

I've lived within my means and have not only followed the law but also personal morality. I own a house I can afford, and while market conditions have probably wiped out all my equity, I am and will keep paying on the mortgage. For all this, I get screwed in the nastiest ways every which way I turn. Why should I put up with this? I can tell you in the future I will follow the bare minimum to stay legal and have no compunctions about doing anything that is technically legal. This, of course, is midway into the collapse of trust and the basic requirements of a stable society. Get where this is heading? Compare us to Rome in 300 AD or 1989 Soviet Union, we don't have a bright future either way.

MsCreant's picture

Hi There Devil's Advocate,

I hear you loud and clear. Because of my awareness of peak oil, starting in 2004, I focused and worked and paid off student loans (9% holy fuck), credit cards, and finally my home. Pulled out of the stock market in 06 because I "did not like what my money was supporting." Saved me the 40% haircut everyone else took. So yeah, every other day I feel like a moron for cleaning up my act and I wanna just get all my credit cards together and do something rash and stick it to them. Moral Hazard is like that.

However, lets go back to that post.

Same shit different day.  Amen, I am so tired of this crap and I am amazed at how long it has gone on.

Those dumb fucks (TurboTax Timmy, Heli Ben, Neck Fat Summers, and the Messiah), could have paid off every mortgage in America. . . I'd resent this, but out of solutions a)dumb and b)dumber, at least printing money to pay those mortgages would have made everyone whole... EVEN THE DERRIVATIVES MARKET. I am open to debate that I am wrong on this. But we would not be perched on the precipice of the margin call from hell, just now. We would not be losing as many jobs and deflating, just now. You get the idea.

Now, demon attourney, regarding etiquette, I'd only junk things that are like spam, stuff unrelated to the thread at all that is fucktarded, kill it before it grows, kinda weird. This post did not strike me as something to flag as garbage, based on those criteria.

In sum, I agree that our tax dollars should not go to those mortgages, however, given that they have gone to banksters, I think it would have been an improvemnent to go to home owners.

agrotera's picture

The really great thing would be for Sarbanes-Oxley to be used to throw in jail the heads of the TBTF since they signed off and made fortunes off of getting their crimes legalized, then pushing the limit, sold crap that they called AAA, then sold credit default swaps on top of it all...

1) Dedicate half of one of the least populated states for a new penitentiary to house the thousands of crooks that brought us the nuclear winter we are living though.


3) Use anti-trust laws to break up the "toobigtofail" ...

[and believe me, Goldman Sachs and Morgan would have been OUT if they didn't win the Lehman bet, get free money through AIG's backdoor, a ban on short selling, and bank holding status to keep them afloat til the "secret Sat. meeting" where Paulson passed out money to his friends.  (ALL THE WHILE, BOTH FIRMS HAD THEIR PR PEOPLE OUT IN FULL FORCE CLAIMING THAT THEY DIDNT NEED THE MONEY...HAHAHAHAHAHAHAHAHAHAHHAHAHAHAHAHAHAHAHAHAHAH)]

4) HELP of some sort for all US citizens and many countries around the world since every citizen is effected by this fraud...



Anonymous's picture

It is truly amazing that this FRAUD and COVER UP by some of the highest elected officials in our land goes ON day by DAY, virtually unquestioned !!!

WHERE are the Town Hall CRIERS when you need them??!!

WHERE are the journalists in this country and

WHY are every one of our elected leaders working for the Wall Street cartels????

This is "CHANGE"?!!!!!!

Sqworl's picture

LOL..S&P offices looks like the set of Mad Men..lol

Anonymous's picture

you are a very rare human species that can think and differentiate..very nice post. Lets end the fed machine.

Anonymous's picture

I have been wondering about that. What would be the down side of paying off every mortgage? Would it have been cheaper?

Anonymous's picture

Would it have been cheaper to pay off every mortgage?

leathaface's picture

Too big to fail.  unfortunately, they will continue to get bailed out

deadhead's picture

Whether one agrees with her or not, Meredith W. answered a Maria Bartoromo question many months ago (last spring I think) about which bank she would most avoid...answer was WFC.

ghostfaceinvestah's picture

Yes, but, most of these loans came from WB, and didn't they take some sort of accounting charge  when they booked them?  They are not non-accrual, they took a charge to face value.  JPM did the same thing with WM's loans.

Maybe an accountant can explain it better.  All I remember is WFC took a charge for these loans that makes them not show up as non-accruals, but they are effectively reserved for.  Some kind of purchase accounting adjustment.

deadhead's picture

ghost....I can't provide specifics nor do I understand all of the accounting, but what you say squares up directly with what I have read.

ghostfaceinvestah's picture

This is from the annual report below.  So for the 93.9B of "high risk" loans (mostly option arms), they took a write down of $37.2B.  So basically they reduced the basis of their WB purchase.  If 37.2B of these loans are non-collectible, it doesn't matter, they are already written off.  Likewise, they don't show up as non-accruals, since they are already written off.

Not to defend WFC's balance sheet, as others pointed out, I think they are a bit light on the HELOC charge offs, but on the WB stuff, the writeoffs they took at purchase were in line with what JPM took on WM (which, btw, were about 2X what WM had reserved for).

"   We have significantly strengthened the balance sheet and future earnings stream of the new Wells Fargo. This included the following actions:

  $37.2 billion of credit write-downs taken at December 31, 2008, through purchase accounting adjustments on $93.9 billion of high-risk loans in Wachovia’s loan portfolio    

Reduced the cost basis of the Wachovia securities portfolio by $9.6 billion, reflecting $2.4 billion of recognized losses in the fourth quarter and write-off of $7.2 billion of unrealized losses previously reflected in negative cumulative other comprehensive income"



deadhead's picture

thanks ghost....most of what i have read is that wfc has not even come close to reserving properly for losses.  that said, their cfo responded to this approx 6 weeks ago and insisted their loan loss reserves were appropriate.

ghostfaceinvestah's picture

No doubt.  As other posters have noted, where they are really going to get hit is their HELOCs.  Last I checked, those were grossly underreserved.  My point is just that the post misses the mark, concentrating on the first lien portfolio (not doubt the construction portfolio sucks - whose doesn't?).

I seem to remember WFC changing their methodology for HELOC charge-offs, pushing them out a month.  nice trick.  like someone 90 down is going to cure.  not likely.  but hey, push it out to 120, why not?

Anonymous's picture

They pushed their "delinquent" status from 120 days up to 180. They are the #1 HELOC lender in Calif. Those 2 sentences alone are enough to tell you they are in deep kimchi.

Anonymous's picture

i think this provides a potent corrective to
the henny penny analysis....yes wells has problems
but they are not of the magnitude suggested

this is all a replay of the dollar slide
last week and i stated that the dollar would
recover from 77.xx which it has now done...not
sure how long it will last but folks need to
dismiss outliers and calm the fuck down....at
least get all the facts first....

Ducky's picture

If the charge was mostly option arms then it does not cover waht was in the original post. The charts are for 1-4 family buildings and construction and development.

It seems like it was Bloomberg taht had an article talking about a FASB change for banks taht would require them to at least state how large their hold to maturity stuff was. It was not going to take effect until 2011 if memory serves. So if it is adopted then we have another year of ghosts on the balance sheets

ghostfaceinvestah's picture

Option ARMs are 1-4 family first liens.

Anonymous's picture

The did write these down at purchase but I believe they are carrying them on their books at roughly 81 cents on the dollar. That means on a 100K loan they have a discount account for 19K and for all purposes own the loan at 81K. these Option Arm loans are trading for roughly 25 to 30 cents on the dollar in the market place. The current market assumption is that roughly 85 to 90% of these default (all are severly underwater) and that expected losses are roughly 60-65% - due to all the cost - deferred interest write-offs, legal fees, disposition of property at a loss. anyways - wells is not reserved enough for this scenario

CreditcalMass's picture

The real killer for Wells is their HELOC exposure on the west coast. They made aprox 80 billion in HELOC and MEWs out there, those are second lien loans, and they're worth absolutely nothing IMO.

thegreatsatan's picture

I'd say thats pretty spot on. Wells is heavy in Cal RE, the heady days of the HomeATM are long behind us and most of those 3 and 5 year ARMs from the peak are about to adjust which should cause a good number of those clowns to default (well maybe after 18 months of free rent).

I live in CA in a pretty quiet beach town, and my place "doubled" in value during the peak of the bubble but I was smart enough not to touch any of that "equity". My neighbor on the other hand somehow picked up a Porsche, an RV, and a cabin up at Big Bear on a regional pilots salary.  The RV recently "disappeard" and I saw a Prius in the driveway the other day (talk about a downgrade). Also after 6 months on the market his house didn't sell either. I wonder if he would let me snag that cabin for .20 cents on the dollar.

Argos's picture

Better hurry before it burns down

Anonymous's picture