Wells Fargo spared subprime turmoil: CFO

By Jonathan Stempel

NEW YORK (Reuters) - Wells Fargo & Co. (WFC.N: Quote, Profile, Research) has largely escaped the turmoil that has felled dozens of U.S. mortgage lenders. Its chief financial officer said it's because the second-largest U.S. home loan provider never made the types of high-risk loans that got others in trouble in the first place.

Since late last year, some 99 U.S. mortgage lenders have "imploded," according to the Web site ml-implode.com, as stagnating home prices, rising interest rates, and a surge in borrower defaults caused many lenders to retrench, seek buyers, or fold. Several, such as New Century Financial Corp NEWCQ.PK, have sought bankruptcy protection.

Easy credit was a big cause of the problem. Borrowers happily took out home loans with low initial "teaser rates," or "negative amortization" loans and "option" adjustable-rate mortgages that let them pay less than the principal and interest due. Many were "subprime" borrowers with weak or poor credit histories.

Monthly payments on $1.2 trillion of adjustable-rate mortgages (ARMs) are slated to reset higher in 2007 and 2008, according to Bank of America research.

"We simply haven't offered those products to our subprime customers," Wells Fargo CFO Howard Atkins said in an interview. "The principal product we have is a debt-consolidation loan. We don't offer products where consumers would become stretched by higher interest rates."

Atkins spoke after San Francisco-based Wells Fargo said second-quarter profit rose 9 percent to a record $2.28 billion. Revenue rose 13 percent to $9.89 billion.

Mortgage banking revenue fell 6 percent to $689 million, but would have risen but for a $225 million loss relating to the impact of rate changes on the value of mortgage servicing rights. Home loan applications rose 6 percent to $114 billion, and originations fell just 1 percent to $80 billion.

The Mortgage Bankers Association expects one- to four-family originations to decline 9 percent this year to $2.57 trillion.