Even though fourth-quarter results were aided by the mortgage businesses of Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC), it was far from telling the overall story as to the continuing weakness in the mortgage sector during the last quarter and continuing on now.
With Bank of America and Wells Fargo being the largest two mortgage lenders in the country, there are some regions and towns where they are the only available source of funding, and so they have a monopoly in those areas.
That of course helps their bottom lines when the mortgages are vetted and set up properly, but it does nothing to help us see the existing health of the mortgage market in the U.S. at this time, which is still reeling and far from any type of recovery.
The problem is banks have also allowed homeowners to stay in their homes far beyond what they should have, not because they’re trying to help out of be nice, but because they don’t want to have too many bankruptcies on their balance sheets and cut into their profits. So they’re attempting to manage that situation by extending the foreclosure time far beyond normal practices so they don’t take huge hits over a couple of quarters. With that in mind it’s impossible to tell the ongoing depth of the problem because we don’t have the real numbers to look at. But even without those numbers, the mortgage business continues to struggle immensely, even with a large number of new mortgages being written to generate revenue for the two giant banks.
Because the government propping up the mortgage markets even more than before, it’s hard to tell whether this is going to be a good long-term revenue generator for Wells Fargo and Bank of America, as Fannie Mae, Freddie Mac and the Federal Housing Administration jump in immediately to guarantee the loans barely after the ink has dried at the signing.
So while they’re losing tons of money on existing loans, they are also generating income from fees associated with originating new loans. None of this has anything to do with the health of the mortgage markets, and it’ll take time to see how well these newest loans will perform as we continue on with the recession.
During the fourth quarter, Wells Fargo outperformed Bank of America as far as the amount of new mortgage loans they originated, as revenue stood at about $94 billion from them, while revenue at Bank of America for new loans came in at close to $84 billion.
Income or profits from originating mortgages for Wells Fargo made them profitable for the quarter, as they were able to garner $3.4 billion from those mortgages. Bank of America took in $1.7 billion in profits, although they stumbled with a net loss for the fourth quarter of $4.2 billion.
It’s questionable as to whether the profits from mortgages will continue for the banks, as the FHA is already under fire for backing up questionable mortgages again, and who knows what disaster is awaiting the ongoing practices of Fannie and Freddie?
For the FHA, the lending practices they’re under fire for again are of the same type that led to the housing boom and ultimately bust. Is anyone in charge at the government concerning this? How could the FHA be allowed to continue on like this in the face of the continuing economic struggles we all face? It makes no sense except that there are a lot of dirty people at the agency who refuse to cut back on lending money because they think in some misguided way they are helping people out. How do you help people out by giving them mortgages they can’t afford or at minimum are questionable as to whether they can pay them over the long term? That’s cruelty, not compassion.
