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Wells CFO Sees Declining Originations Continuing

New mortgage business has started to decline at Wells Fargo & Co., and the company’s chief financial officer projects that the decline will continue. But the company is committed to home lending and still sees much opportunity.

The San Francisco-based lender previously reported that it originated $524 billion in residential loans during all of last year.

At the same time, its mortgage servicing portfolio finished last year at $1.873 trillion.

“We’re the largest residential mortgage originator and servicer,” Wells Fargo Chief Financial Officer Tim Sloan said Wednesday during a presentation at the Credit Suisse Financial Services Forum. “And this is a result of our long-term focus on providing our customers with great products and services and remaining committed to the mortgage businesses when others exited.”

But fourth-quarter mortgage production fell to $125 billion from the prior quarter’s $139 billion, and the outlook is for continued decline.

“I think it’s likely gonna continue because of the pace at which refinancing activity is declining in the entire industry is a little bit faster than the new purchase money activity, though that’s picking up which is good,” Sloan said.

But he noted that Wells Fargo has been through many mortgage cycles, and they have been discussing the anticipated decline for six to nine months.

Sloan explained that it is mathematically impossible to continue in the current refinance environment.

“We expect originations to continue to decline. We expect gain-on-sale margins to decline,” he said.

But he noted that a review of the company’s servicing portfolio in the fourth quarter indicated that there are hundreds of billions of dollars in opportunity in the existing portfolio. Plus, rates are still low enough to continue generating more refinances.

Sloan said that if originations decline on a sustained basis, it takes between 30 and 90 days to adjust costs to the decline.

“I’m not being negative about the business,” he added. “It’s a great business. We love the business.”

He sees much opportunity just from cross-selling.

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