Four mortgage banks in the United States revealed the impact of mounting losses from the American credit crisis and housing recession yesterday, as Wells Fargo admitted to a $490 million (£241 million) charge to cover bad home loans.

Wells Fargo is the fifth-biggest American mortgage lender and boasts Warren Buffett as its largest shareholder. His Berkshire Hathaway investment group owns 7.7 per cent of the stock as of June 30, according to Thomson ShareWatch. Wells Fargo has more than 3,200 branches in 23 US states and $548.7 billion of assets.

The bank said yesterday that it had written off $490 million of bad mortgages in the third quarter of the year as America slides into its worst housing recession for 16 years.

Howard Atkins, the chief financial officer at the bank, said that home equity losses had soared fivefold during the quarter and would continue to rise in the present quarter.

He said: “It was a tough environment. Credit markets seized up and the housing market took another downturn.”

Mortgage lenders are suffering from a dramatic increase in the number of borrowers who are falling into arrears with their loan repayments as a large number of adjustable-rate mortgages reset with higher interest charges.

In August alone, the national foreclosure rate was one for every 510 households. According to RealtyTrac, the August rate had risen by 36 per cent on July.

Yesterday, alongside Wells Fargo, US Bancorp, the Minneapolis-based mortgage lender and sixth-biggest bank in America, set aside $199 million during the third quarter of the year for credit losses, a rise of 47 per cent. It added that it had effectively written off $641 million of bad loans. Both a rise in mortgage arrears and difficulties within the credit markets hit US Bancorp’s profitability, which slipped 2 per cent over the period to $1.18 billion.

Banks are struggling as tight capital markets force them to write down holdings as investors take less risk. Meanwhile, falling housing prices are making it harder for homeowners to refinance, adding to mortgage arrears and leaving some commercial real estate borrowers strapped for cash.

KeyCorp, a mortgage lender based in Cleveland, Ohio – one of states worst hit by the downturn – announced a 33 per cent slide in profits to $312 million for the third quarter of the year, well below Wall Street expectations. It blamed a 73 per cent jump in nonperforming loans to $570 million, in part reflecting bad loans made to commercial real estate construction groups in Florida and California.

Unsteady capital markets also caused $77 million of losses from investments, loan sales, write-downs and trading. “Fixed-income markets experienced one of the most volatile periods in a long, long time,” Henry Meyer, the chief executive, said.

In Alabama, Regions, the tenth-biggest American mortgage lender, said that although quarterly profits had risen 12 per cent, losses on bad loans had quadrupled to $90 million over the period.

Foreclosure figures

— The national foreclosure rate in the US in August was one for every 510 households

— Foreclosure includes mortgage defaults, auction sale notices and bank repossessions

— There were 243,947 foreclosures in August, up 36 per cent on the previous month and up 115 per cent on last year

— The worst foreclosure rate is in Nevada: one in every 165 households in the state is at risk of losing its property

— California has the second-worst foreclosure rate at one household in 224, a 48 per cent increase over July

— Florida has the third-worst rate, with one household in 243 foreclosing, up 77 per cent over July

Source: RealtyTrac US Foreclosure Market Report

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