This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Arnold: Increase Seen in Non-Performing Home Equity Loans

I have written in the recent past about the non-performing residential loans at the money centers. In this column I'll address the status of home equity loans that are held by these same institutions.

At about 24%, first trust residential loans account for the largest portion of banks' balance sheets; at about 8%, home equity loans are the fifth largest. As was the case with first trust loans, the home equity loans as a percentage of total assets is higher at the money centers at an average of about 12% at Bank of America (BAC - Get Report), Wells Fargo (WFC - Get Report) and JPMorgan (JPM - Get Report). Citibank (C - Get Report) is the only one with a lower figure of about 5%.

In the past three years, the value of home equity loans held by all banks has declined 12%, from about $670 billion to about $590 billion. More than half of these, about $300 billion worth, are concentrated in BAC, WFC, JPM and C with balances of $98 billion, $93 billion, $84 billion and $27 billion, respectively.

The value of the non-performing home equity loans in these four increased dramatically during the first quarter of this year and well above the preceding trend rate of the past three years. The value of loans being accounted for as non-performing roughly doubled at BAC, WFC, and C from the fourth quarter 2011 to the first quarter of 2012.

Non-performing loans are loans that are at least 90 days past due, are no longer accruing interest, but have not yet been charged off against loan loss reserves. At BAC, the jump was from about $2 billion to $4 billion, at WFC from about $2.2 billion to $3.5 billion and at C from $500 million to $1 billion. JPM stayed about the same at $2.2 billion.

For just one quarter, these are massive increases. Most notable, however, is the fact that during this same time there was almost no increase in the value of charged-off home equity loans. During this time frame, the total value of loans of all kinds on the balance sheets of these four money centers declined along with their loan loss reserves. Plus, the decline in loss reserves was greater than the decline in loan value.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs