Home-Equity Loans Latest to Bite Banks

Even lenders that dodged subprime chaos suffering big trickle-down losses
By Jim O'Neill,  Newser User
Posted Mar 12, 2008 12:03 PM CDT
A foreclosure sign is seen atop a sale sign for a house in Stockton, Calif., Saturday, Dec. 1, 2007. Home foreclosures soared to an all-time high in the final quarter of last year and are likely to keep...   (Associated Press)
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(Newser) – Home-equity loan defaults are soaring, the Wall Street Journal reports, as the trickle-down effect of the subprime mortgage crisis makes its way into what was once a source of big profits for lenders. JP Morgan Chase and Wells Fargo both escaped major writedowns on subprime mortgages gone bad, but already are feeling the pain from home-equity losses.

Analysts say problems will continue through 2008, prompting banks to tighten credit further. JP Morgan said it expects home-equity-related losses to increase by 81% from the fourth quarter of 2007 to the first quarter of '08, to $450 million, adding that losses could double by year’s end. Washington Mutual, National City, and SunTrust are among other lenders facing home-equity woes.