The Equity Home Mortgage May Hit Bank Earnings Hard

The equity home mortgage , which is more commonly known as the home equity loan or the home equity line of credit (HELOC), may soon be turning the positive bank earnings figures reported for the first quarter of 2010 to a more negative figure. On April 14, 2010, banks such as JPMorgan Chase, Bank of America and Wells Fargo all reported positive first-quarter earnings for 2010.

While bank bailouts and various stimulus and incentive programs have helped to put banks back in positions to start paying dividends to their shareholders and buying back shares, a big equity home mortgage problem is looming in the near future that could take it all down. As equity home mortgages start to default more and more, this is a problem that is not currently reflected in the bank earnings but is certain to be coming down the pipeline.

'''The Hit of the Bad Equity Home Mortgage'''

A New York research firm by the name of CreditSights recently released its findings from an analysis it did on the four biggest banks in the U.S. including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo. CreditSight predicts that the banks may need to start saving their assets to the tune of about $33.2 billion in addition to current asset holdings in order to cover the losses that are about to hit from the losses incurred by equity home mortgage loans going bad. According to Amherst Securities Group, which is a firm that analyzes home mortgages, the four banks currently hold $442 billion of the $1.1 trillion in equity home mortgage loans in the country.

JPMorgan Chase indicated earlier this year that the quarterly write-offs for bad equity home mortgages could hit $1.4 billion. JPMorgan Chase has already written off $1.1 billion in bad equity home mortgages in the first quarter of 2010, but the CEO still cites that the rest of the year is uncertain.