Wells Fargo CEO: Housing Slide Not Over

Here is a link to the article.

Wells Fargo & Co. President and Chief Executive John Stumpf said Thursday the housing market is experiencing its worst decline since the Great Depression.
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Stumpf said the weakening market is due to a combination of factors, ranging from too much demand for homes during the first half of the decade to an increase in fraudulent loans and risky loan products.

Wells Fargo has increased loss provisions in recent quarters to cover increasing defaults on mortgages and home-equity products. Declining home prices have led to larger losses in Wells Fargo's portfolios, though so far, the increased losses are related more to severity than increased frequency of losses, Stumpf said.

The slides and audio for this conference can be accessed here. Some notable information from it:

- Unprecedented decline in national home prices
- Increase in losses in Q3’07 primarily a severity issue
- Certain markets with more housing stress – e.g. Midwest and CA Central Valley
- Correspondent channel: 7% of portfolio at 9/30/07, yet 25% of Q3’07 losses
- Disproportionate losses in correspondent channel. Contributing factors:
1. Acquired closed loans from third party originators
2. Typically purchase-money loans
3. Higher CLTVs at origination
4. Average CLTV at 9/30/07: 74% total home equity portfolio. 87% correspondent portfolio
5. Largely concentrated in 2006 and first half 2007 vintages
6. Largely sourced in MSAs that experienced steep, sudden
declines in housing values

Briefly, the retail channel refers to loans made by a company's own loan officers, while wholesale and correspondent loans are made by third-party brokers/salespeople. There is an UberNerd on Mortgage Origination Channels which explains this in detail, as well as some of the problems that it has caused, much better than I ever could.