Driven by plunging refinance activity, mortgage production tumbled at Wells Fargo & Co. and appears to be headed even lower. But the firm grew its first mortgage portfolio, cut its residential delinquency and pushed overall earnings to an all-time high.
The nation’s largest residential lender reported $80 billion in mortgage production for the third quarter.
Business tumbled from the prior three-month period, when originations amounted to $112 billion. Activity plummeted from the quarter ended Sept. 30, 2012, when $139 billion in home loans were funded.
So far this year, Wells Fargo has originated $301 billion.
Retail originators generated $44 billion of third-quarter volume, while the correspondent-wholesale channel was responsible for $35 billion.
Wells Fargo noted that refinance volume sank 48 percent from the second quarter, while purchase financing was off just 4 percent.
Refinances accounted for 41 percent of third-quarter volume, down from a refinance share of 56 percent in the previous period. Refinances closed through the Home Affordable Refinance Program represented 8 percent of third-quarter production versus 9 percent of second-quarter activity.
Loan applications plummeted to $87 billion during the latest period from $146 billion in the second quarter, suggesting that fourth-quarter volume is likely to decline.
The managed residential servicing portfolio closed out the third quarter at $1.844 trillion, lower than $1.851 trillion at the end of the second quarter and $1.879 trillion as of the same date in 2012.
Delinquency on the servicing portfolio, including loans in foreclosure, was 6.33 percent as of Sept. 30, falling 32 basis points from the second quarter and 99 BPS better than the same period in 2012.
Included in the total servicing portfolio were $1.494 trillion in loans serviced for others. Three months prior, the third-party portion was $1.487 trillion.
Residential first mortgages on the balance sheet totaled $254.924 billion. Wells Fargo grew first mortgage assets from $252.841 billion at the end of the second quarter and $240.554 billion as of June 30, 2012.
Junior lien holdings were cut to $67.675 billion from $70.059 billion three months earlier and $78.091 billion 12 months earlier.
Wells Fargo said its serviced a total of $533 billion in commercial mortgages. The portfolio grew from $525 billion in the second quarter and $523 billion in the third-quarter 2012.
The commercial mortgage servicing portfolio included $106 billion in third-party servicing, more than $105 billion three months prior.
Commercial real estate loans owned by Wells Fargo increased to $105.549 billion from $104.673 billion as of June 30 and $104.611 billion at the end of the third-quarter 2012.
In addition, another $16.413 billion in CREÂ construction loans were owned by the bank, slightly less than the $16.422 billion on the books at the end of the second quarter. The total was also lower than $17.710 billion a year earlier.
Repurchase liability finished the third quarter at $1.421 billion, while outstanding repurchase demands were $1.309 billion
“As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses,” Wells Fargo Chief Financial Officer Tim Sloan said in the report.
Income before income tax expense slipped to $8.301 billion from $8.471 billion but was up from $7.510 billion in the third-quarter 2012.
However, third-quarter after-tax net income of $5.578 billion was the highest ever. After-tax earnings were $5.519 billion three months earlier and $4.937 billion a year earlier.
The San Francisco-based firm said that its mortgage division “announced team member reductions of approximately 5,300 FTEs in 3Q13.”
Wells Fargo reported 270,600 team members across all business lines. The workforce was reduced from 274,300 at the end of June but up from 267,000 as of the same date in 2012.
