Mortgages are defaulting, yet lenders have been profiting from that department. Bank of America and Wells Fargo have seen an increase in their profits compared to last year’s lows. New loans, most of which are bought by Fannie Mae, Freddie Mac and the FHA are the main reason for the profits major lenders are able to claim.
At the end of last year, Wells Fargo claimed $94 billion in mortgages and $84 billion was claimed by Bank of America. Reports by the National Mortgage News found that both banks have made up about 40% of the new mortgages in 2008. Most of the new loans being originated are between these two lenders, which accounts for the billions of dollars in profits last year.
With default mortgages costing them billions of dollars, seeing a profit from new mortgages has contributed greatly to their company profits and perhaps a brighter glimpse into the future.
Could this profit be due to the money that the government has given to the lenders? What will happen once the government steps out of the banking systems? Will they continue to lend carelessly or will they learn from their mistakes by adding tougher regulations when lending. The FHA stated that they will impose strict policies on lenders who they suspects are lending without regulations.
The managing director of Institutional Risk Analytics said “Few banks have accounted for the losses of home-equity loans that may arise when homeowners end up in deep water. The fiction is that this is all good money that the market will bounce back and happy days are here.”
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