New Apps Surge at Wells

Fourth-quarter residential production was $50 billion at the San Francisco-based company, off from $51 billion in the third quarter and $56 billion a year earlier.

Refinances accounted for 68 percent of fourth-quarter volume, jumping from the prior period’s 39 percent. Fourth-quarter activity included $28 billion in third-party originations at Wells Fargo Home Mortgage, off from the prior quarter’s $25 billion. Retail business fell to $20 billion from $23 billion.

New loan applications during the most recent quarter reached $116 billion, climbing from $83 billion in the third quarter. The application pipeline ended last month at $71 billion — including $5 billion from Wachovia — climbing from $41 billion at the end of September. The increased 1003 activity is expected to push first-quarter originations higher.

“During the last half of the quarter, we experienced a significant increase in refinance applications as mortgage rates declined significantly in response to the proposed actions by the Federal Reserve to lower mortgage rates,” Wells Executive Vice President Mark Oman said in the report. “Applications of $63 billion for December were the fourth highest month on record in what is traditionally a seasonal slow period.”

Wells said its mortgage market share reached 12 percent based on third-quarter data, rising from 10 percent in the third-quarter 2007. The Wachovia Corp. acquisition on Dec. 31 will likely boost the share and put the combined institution in contention for the top U.S. residential lending spot.

“We were able to increase our lending to creditworthy customers because we were building capital and shrinking our balance sheet in 2005 and 2006 when credit spreads were unrealistically low and were not priced for their underlying risk,” Wells Chief Executive Officer Joseph Stumpf stated in the report. “We did make some mistakes, but, for the most part, we maintained our credit discipline.”

The mortgage servicing portfolio under management was $2.154 trillion on Dec. 31, jumping from $1.580 trillion on Sept. 30. The year-end figure included $1.860 trillion in loans serviced for others and a sub-servicing portfolio of $0.026 trillion. Backing out an estimated commercial mortgage servicing portfolio of $0.180 trillion as of June 30, 2008, the residential portion of the servicing portfolio was around $1.974 trillion at the end of last year, compared to $1.376 trillion a year earlier.

Wachovia contributed $271 billion to the total servicing portfolio.

Residential mortgages owned by Wells ended last year at $247.9 billion, soaring from $77.9 billion at the end of the third quarter and reflecting the acquisition of Wachovia. Junior-lien holdings rose to $110.2 billion from $75.6 billion. The total home-equity portfolio, including Wachovia holdings, was $129.4 billion at December’s end.

Non-accruing residential mortgages climbed to $2.6 billion on Dec. 31 from $2.0 billion on Sept. 30, while non-accruing junior liens were $0.9 billion, up from $0.8 billion.

The portfolio of commercial real estate and construction loans at Wells was $68 billion, while Wachovia’s commercial holdings were $70 billion.

Wells said it took a $413 million write down on increases to its mortgage repurchase reserve and aged loans in its mortgage warehouse. Home-equity charge-offs were $2.2 billion, and increases in junior-lien losses aren’t expected to improve until home values stabilize.

During all of last year, company-wide earnings — excluding Wachovia — were $2.8 billion, tumbling from $8.1 billion in 2007. The fourth-quarter loss was $2.5 billion, worse than the $1.6 billion third-quarter profit and a profit of $1.4 billion in the fourth-quarter 2007.

Employee count at the combined company is now more than 281,000. The report indicated Wells’ headcount ended last year at 158,900, down from 159,000 at the end of the third quarter.

“We are ‘open for business’ among the leaders in banking industry in providing credit to consumers,” an investor presentation stated.