Boston, MA 10/30/2013 (wallstreetpr) – Wells Fargo & Co (NYSE:WFC), in the 3Q, posted its lowest quarterly loan loss rate in 9 years. The lower losses made the bank dip into funds that it set aside to cover bad loans, thus increasing profits by about $600 million after including taxes. Tightening of underwriting standards for consumer loans, the 2009 move, was a part of this improvement. These standards include more strict requirements for verifying income of prospective homeowners. At an investor conference in September, Tim Sloan, the Chief Financial Officer of the company, said that residential real estate loans have virtually no losses since the year 2009.
There is another factor that is helping the company to improve its loan performance. A larger share of the portfolio of Wells Fargo is now made up by post-crisis loans which are driving the quality higher. At the end of the third quarter, around 45% of the consumer loans and nearly half the commercial loans were made after the financial crisis. According to CoreLogic, home prices increased by 12.4% all around the world in August from a year earlier. That had a big impact on the quality of home equity loans of Wells Fargo where losses fell by nearly 3/4 since the 3Q of 2012.
A spokeswoman said that many of the loans are hovering just above or just below the value of the home. This is the reason for when the losses on the loans change dramatically, as the prices of home goes up. Over half of the decline in loan losses between 3Q of the year 2012 and 2013 came out of home equity portfolio of Wells Fargo. Sloan told in a recent interview that when all of these things are kept together, it makes a rapid improvement in credit quality.
Not only Wells Fargo, but there are many other banks of United States who have been benefited from more of its customers paying their bills.
