Southern California Home Prices Will Remain Low As Foreclosures Increase With Unemployment Pressures; Wells Fargo Will Be Writing Down Value Of Wachovia Home Loans It Purchased

 “We’re entering into an economic cycle where unemployment is likely to drive foreclosure activity,” said Sharga, executive vice president at the Irvine, California-based seller of default data. “With what’s going on with the auto industry, we could see a pretty nasty trickle affect.”

Wells Fargo Chief Executive Officer John Stumpf said as recently as Dec. 10 that Wachovia’s $482.4 billion loan portfolio will produce $60 billion in losses over the next three years, with about 60 percent coming from option adjustable-rate mortgages. Wells Fargo, based in San Francisco, is the second- biggest U.S. mortgage lender, behind Bank of America Corp.

California Risk

Wachovia brings added housing risk in California, home to its Golden West Financial Corp. unit, and Florida, which claims the second-highest foreclosure rate in the country.

Unemployment rates  in California and Florida were 8.4 percent and 7.3 percent, respectively, in November, compared with 6.7 percent nationwide. Among economists surveyed by Bloomberg, the highest estimate for U.S. unemployment in the third quarter is 9.5 percent, a level not seen since 1983.“There are a lot of unanswered questions that will take time to play out,” said Jennifer Thompson , an analyst at Portales Partners in New York, who recommends holding Wells Fargo shares. “How quickly will they be able to write down the value of loans, how aggressive are they going to be and how are the loans that they’re acquiring going to perform in this type of environment?”

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