Main segments of consumer loans
The main segments of retail loans at Wells Fargo (WFC) are residential mortgages, credit card loans, auto loans, and student loans. There are other smaller loan segments, but they’re not significant enough to warrant our attention or analysis.
Residential mortgages: The largest consumer loan segment
Wells Fargo’s largest consumer loan segment is residential mortgages. Wells Fargo is one of the banks that has benefited most from the subprime crisis. Part of its post-crisis strategy was to grow its mortgage loans aggressively.
There are two main types of residential mortgage loans at Wells Fargo.
- real estate 1–4 family first mortgage (or FFM)
- real estate 1–4 family junior lien mortgage (or FJLM)
Family first mortgages performed well
Wells Fargo’s largest line of consumer loans is FFM. Those loans stood at $265.4 billion in 4Q14, a growth of 1.9% compared to 4Q13.
Nonaccrual loans in the FFM portfolio stood at 1.78% of total loans. This was a good improvement. Nonaccrual loans stood at 1.85% in 4Q13. Charge-offs in these loans were also lower. Charge-offs improved to 0.06% in 4Q14. This indicates that the bank was able to recover more money on these loans.
Family junior lien mortgages disappointed in 4Q14
FJLM loans stood at $59.7 billion at the end of 4Q14. They fell by 1.9% compared to 4Q13. On a positive note, the nonaccrual FJLM loans declined to 3.04% of the total FJLM portfolio. Charge-offs also declined to 0.77%.
However, growth in overall residential mortgages declined in 2014. The pace of growth slowed down at JPMorgan (JPM), Bank of America (BAC), and Citibank (C). This comes on the back of weak end user demand for new housing and increased preference for renting.
All these banks are part of the Financial Select Sector SPDR (XLF).