Wells Fargo 2013 Annual Report Download - page 67

HOME EQUITY PORTFOLIOS Our home equity portfolios
consist of real estate 1-4 family junior lien mortgages and first
and junior lien lines of credit secured by real estate. Our first lien
lines of credit represent 22% of our home equity portfolio and
are included in real estate 1-4 family first mortgages. The
majority of our junior lien loan products are amortizing payment
loans with fixed interest rates and repayment periods between
five to 30 years.
Our first and junior lien lines of credit products generally
have a draw period of 10 years (with some up to 15 or 20 years)
with variable interest rate and payment options during the draw
period of (1) interest only or (2) 1.5% of outstanding principal
balance plus accrued interest. During the draw period, the
borrower has the option of converting all or a portion of the line
from a variable interest rate to a fixed rate with terms including
interest-only payments for a fixed period between three to seven
years or a fully amortizing payment with a fixed period between
five to 30 years. At the end of the draw period, a line of credit
generally converts to an amortizing payment schedule with
repayment terms of up to 30 years based on the balance at time
of conversion. Certain lines and loans have been structured with
a balloon payment, which requires full repayment of the
outstanding balance at the end of the term period. The
conversion of lines or loans to fully amortizing or balloon payoff
may result in a significant payment increase, which can affect
some borrowers’ ability to repay the outstanding balance.
The lines that enter their amortization period may experience
higher delinquencies and higher loss rates than the ones in their
draw or term period. We have considered this increased inherent
risk in our allowance for credit loss estimate.
In anticipation of our borrowers reaching the end of their
contractual commitment, we have created a program to inform,
educate and help these borrowers transition from interest-only
to fully-amortizing payments or full repayment. We monitor the
performance of the borrowers moving through the program in
an effort to refine our ongoing program strategy.
Table 26 reflects the outstanding balance of our home equity
portfolio segregated into scheduled end of draw or end of term
periods and products that are currently amortizing, or in balloon
repayment status. It excludes real estate 1-4 family first lien line
reverse mortgages, which total $2.4 billion, because they are
predominantly insured by the FHA, and it excludes PCI loans,
which total $156 million, because their losses were generally
reflected in our nonaccretable difference established at the date
of acquisition.
Table 26: Home Equity Portfolios Payment Schedule
Scheduled end of draw / term
(in millions)
Outstanding balance
December 31, 2013 2014 2015 2016 2017 2018
2019 and
thereafter (1) Amortizing
Home equity lines secured by real estate:
Junior residential lines $ 57,379 3,174 6,107 7,621 7,685 4,202 25,472 3,118
First residential lines 18,326 983 1,361 1,081 1,051 1,207 11,852 791
Total residential lines (2)(3) 75,705 4,157 7,468 8,702 8,736 5,409 37,324 3,909
Junior loans (4) 8,425 10 102 136 141 15 1,466 6,555
Total $ 84,130 4,167 7,570 8,838 8,877 5,424 38,790 10,464
% of portfolios 100 % 5 9 11 11 6 46 12
(1) The annual scheduled end of draw or term ranges from $2.0 billion to $10.9 billion per year for 2019 and thereafter. The loans that convert in 2025 and thereafter have draw
periods that generally extend to 15 or 20 years.
(2) Lines in their draw period are predominantly interest-only. The unfunded credit commitments total $73.6 billion at December 31, 2013.
(3) Includes scheduled end-of-term balloon payments totaling $890 million, $525 million, $348 million, $436 million, $601 million and $1.3 billion for 2014, 2015, 2016, 2017,
2018, 2019 and thereafter, respectively. Amortizing lines include $125 million of end-of-term balloon payments, which are past due. At December 31, 2013, $274 million, or
7% of outstanding lines of credit that are amortizing, are 30 or more days past due compared to $1.5 billion, or 2% for lines in their draw period.
(4) Junior loans within the term period predominantly represent principal and interest products that require a balloon payment upon the end of the loan term. Amortizing junior
loans include $70 million of balloon loans that have reached end of term and are now past due.
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