Nov. 15 (Bloomberg) -- Wells Fargo & Co., the second- largest U.S. mortgage lender, said today that the bank's home- equity losses are likely to increase in the fourth quarter and remain ``elevated'' through 2008.

Chief Executive Officer John Stumpf said the housing market was the worst since the Great Depression. The San Francisco- based bank fell 4 percent in New York trading, helping drag down financial stocks.

Stumpf, who was speaking in New York at a conference sponsored by Merrill Lynch & Co., said the bank was ``not immune'' to the housing-market slowdown that's forced banks and securities firms to write down the value of more than $45 billion of debt.

``It's hard to say what inning we are in,'' he said of the declining housing market. ``I don't think we are in the ninth inning. If we are, it's going to be an extra inning game.''

Wells Fargo fell $1.28, or 3.9 percent, to $31.97 at 4:02 p.m. in composite New York Stock Exchange trading. It declined 10 percent this year.

Wells Fargo said it had net credit losses on 0.77 percent of its $83 billion in home-equity loans in the third quarter. Most of the losses occurred in markets where housing values have been particularly depressed such as the Midwest and California's Central Valley, Stumpf said.

Loans Reset

He said that of that total 58 percent of the home-equity loans were second lien, while $12 billion were first lien, or had first call on the assets in the event of default. Homeowners use the loans to borrow against the value of their house above what they paid for it.

Stumpf, who became Wells Fargo's CEO in June, pointed to 2008 as particularly challenging because a large number of home loans will reset to higher interest rates, pushing up monthly payments. Extensive efforts are being taken by federal and industry officials to help struggling borrowers, he said.

The bank's $67 billion portfolio of first-mortgage home loans faces net credit losses of only 11 basis points during the third quarter, Stumpf said, citing ``disciplined underwriting.'' The bank expects to gain market share in home loans as borrowers shift to better capitalized companies such as Wells Fargo, he said.

Wells Fargo's profit in the third quarter grew at the slowest pace since the second quarter of 2002 after losses from home-equity and consumer loans at the bank climbed.

New Rivals

Stumpf attributed the severity of the housing slump largely to the entry of nontraditional lenders and lax lending practices that didn't adequately gauge borrowers' ability to repay their debts. The 2000 collapse of the Nasdaq Stock Market and lower interest rates following the Sept. 11, 2001, terrorist attacks in New York and Washington combined to create excessive demand for housing in subsequent years, he added.

There is a pervasive oversupply of homes across the nation, which is unlike previous housing slumps that were fairly isolated geographically, Stumpf said. With relatively low interest rates and a growing economy, the housing market will rebound quickly once the number of homes for sale declines to normal levels, he said.

Wells Fargo originated $148 billion in mortgage loans through June 30, second behind Countrywide Financial Corp.'s $245 billion, according to industry publication Inside Mortgage Finance. It also ranks second behind Countrywide in mortgage servicing with $1.5 trillion as of Sept. 30, or almost one of every seven U.S. mortgages, Stumpf said.

Buffett Raises Stake

Home mortgage and home-equity loans make up only 19 percent of Wells Fargo's profit, Stumpf said. Its largest contributor to profit is its community banking business, which accounts for a third of earnings.

Wells Fargo's largest shareholder, with an 8.3 percent stake, is Berkshire Hathaway Inc., the investment firm run by billionaire Warren Buffett. Berkshire added almost 22 million shares during the third quarter, according to a regulatory filing disclosed yesterday.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina, at 6587 or dmildenberg@bloomberg.net.

Last Updated: November 15, 2007 17:45 EST