Fitch Ratings has placed the issuer default ratings of Wachovia Corp. and its subsidiaries on Rating Watch Negative. The current AA-/F1-plus IDRs are in jeopardy because of "continued headwinds facing U.S. consumer asset quality and indications of further meaningful home price deterioration in certain markets," Fitch said. The rating agency noted that Wachovia built its loan loss reserve to $2 billion in the first quarter of 2008, but this amount represented only 1.2% of Wachovia's $170 billion residential mortgage portfolio. Moreover, payment-option adjustable-rate mortgages constitute $122 billion of the portfolio, and 58% of those option ARMs are from California, where home prices have been falling.
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