Home equity lines of credit (HELOCs) are not faring well these days. But, lenders like Wells Fargo have devised a way to make these bad loans look good to investors.

ReportonBuisness.com explains:

“Wells Fargo owns a huge pile (almost four times its total capital) of Home Equity Lines of Credit, or HELOC loans. HELOCs are second-lien loans, meaning they rank behind the mortgage on the house, and if the mortgage is under water, then the HELOC is only worth whatever is left after the bank holding the mortgage gets paid in full.

Up until April 1, if a HELOC was 120 days behind in its payments, Wells Fargo would write off the loan. After that date they changed their policy, only writing off the bad loans after they are 180 days in arrears. In effect, they decided to pretend that bad loans were good for an extra 60 days. If they had used the old rules, their earnings would have missed analysts’ estimates by more than they beat them by using the new method.”

It’s certainly an interesting accounting trick. However, lenders can’t hide HELOC losses forever.

See Also:

Congressman Questions HELOC Freeze Lenders

Wells Fargo Experiences Home Equity Line Losses

Tags | Heloc, home equity line of credit, Wells Fargo