When it comes to identifying the bank sporting the largest portfolio of troubled mortgages, all fingers point to Bank of America (NYSE:BAC) and its pile of smoldering loans belonging to Countrywide. Therefore, it's no stretch to assume that B of A is also foreclosing on the highest number of homes -- a fact borne out by a recent study by 24/7 Wall St. However, it may surprise you to know which bank ranks second in foreclosures: Wells Fargo (NYSE:WFC).
Bank of America shares the pain
Considering the fact that Wells Fargo has been handling approximately one-third of all mortgage loan activity for the past year or more, perhaps this fact shouldn't be so startling. But Wells has always had a reputation for conservative banking, and it actually came out of the housing meltdown in better shape than its peers because of its minimal involvement in subprime lending after 2004.
Occupying slot No. 3 is JPMorgan Chase (NYSE:JPM), which may be another surprise, since the bank is more often associated with shaky trading deals than unstable mortgages. But the bank revealed last year that it has a real loan default problem, which led to an increase in hiring when other banks were cutting back.
Study shows loans serviced, no necessarily owned
The numbers of homes in foreclosure at each bank -- over 96,000 at B of A, nearly 85,000 at Wells, and more than 54,000 at JPMorgan -- represent mortgages being serviced by the bank, which may or may not be loans sitting on the banks' books. According to the study, banks may service loans belonging to another institution, although servicing loans in default is a losing proposition.
However, considering how assiduously big banks have been dumping these mortgage servicing rights since new capital regulations have made them too expensive to hold, the number of loans being serviced by banks is likely dwindling.
Numbers show the malaise isn't over yet
Still, these numbers are extremely high, and uncomfortably concentrated in three megabanks. Of the 750,000 total homes in foreclosure as of last month, more than 30% are being dealt with by these three institutions. Of those loans currently in foreclosure, those considered underwater -- in this case, having a loan-to-value ratio of 125% -- make up more than 50% of the total for each bank.
Numbers like these bring home the stark reality that, as long as banks are harboring such vestiges of the housing meltdown, neither their recovery -- nor that of the housing market -- can be considered assured.