Wells Fargo & Co. (WFC) has opted not to put a stop to its foreclosure activities. The company has expressed confidence in its foreclosure filings, based on the affidavit procedures and the auditing of its process that it conducts on a daily basis.
This decision of Wells Fargo is in contrast to its rivals Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), who decided last week to halt their foreclosure activities.
Last Friday, BofA announced a temporary cessation in its foreclosure activities in 23 states in order to investigate whether some of its former executives rushed through the scrutiny of the documents of homeowners before verifying their authenticity of information. Besides BofA, JPMorgan Chase and General Motors Acceptance Corporation Mortgage LCC (GMAC) have opted for similar measures.
BofA has decided to revise all the affidavits related to the foreclosure cases where the court has not yet given its verdict. On the other hand, JPMorgan and GMAC Mortgage said that they would revise only those documents that they thought had been improperly done. Against such lapses by biggies, Citigroup Inc. (C) has affirmed that it continuously reviews its document verification processes and provides proper training to its staff, so it is in little danger of having to freeze its foreclosure program.
Though this decision of Wells Fargo should not result in a significant benefit to its earnings, such confidence in its operating efficiencies may trigger positive sentiments for investors. The company’s credit challenges seem to lessen and capital ratios remain strong. With its diverse geographic and business mix, it is well positioned compared to its peers.
The Wachovia acquisition and the demise of some smaller players has helped Wells Fargo garner a larger share in the mortgage markets. However, we believe that the recent financial regulations will have a negative impact on the both the top line and the bottom line of the company. Also, weak consumer trends will impact earnings in the upcoming quarters.
Wells Fargo currently retains its Zacks #3 Rank (short-term Hold rating), implying that the stock is expected to perform in line with the broader U.S. equity market in the near term.
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