Home-Equity Loans Latest to Bite Banks

Even lenders that dodged subprime chaos suffering big trickle-down losses
By Jim O'Neill,  Newser Staff
Posted Mar 12, 2008 12:03 PM CDT
Home-Equity Loans Latest to Bite Banks
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 on rising, underscoring the suffering of distressed homeowners and the growing danger the housing...   (Associated Press)

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. (More subprime crisis stories.)

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