Wells Fargo Nicked by Home Equity Loan Defaults.

San Francisco -- Wells Fargo, which has evaded the subprime mess better than other large banks so far, last week said it will set aside a $1.4 billion loss reserve related to home-equity lending.

Wells Fargo already had tightened underwriting requirements in the aftermath of earlier home-equity losses. Now, the company is no longer accepting business through the third-party lending channels responsible for the anticipated fourth-quarter hit.

Wells Fargo said it will no longer originate home-equity loans through wholesalers where the combined loan-to-value ratio of the first and second mortgages is 90% or higher, or where the second mortgage is not behind a Wells Fargo first mortgage.

Wells Fargo also is no longer acquiring home-equity loans through correspondent relationships, including other financial institutions or mortgage companies.

Given todays uniquely challenging environment, we believe that sharpening our focus on our better-performing and relationship-based home-equity loans is in the best long-term interest of our company, said John Stumpf, Wells Fargo president and CEO, in a statement. He added that Wells Fargo considers home-equity loans remain an important product and that Wells Fargo remains open for business in all direct-to-customer channels.

The company also has put $11.9 billion of loans acquired through these indirect channels in liquidating status under a dedicated management team. The company said it expects to incur losses totaling about $1 billion over the course of 2008 and 2009 from these loans.

The $11.9 billion liquidating portfolio represents 3% of Wells Fargos total loan portfolio and are the highest risk segment of Wells Fargos $83.4 billion home-equity group portfolio, the company said. They represent the most recently originated vintages with the highest combined LTV ratios ...