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Wells Lags BoA in Q3

Residential loan production tumbled by nearly a quarter at Wells Fargo & Co. — leaving Bank of America Corp. as the biggest U.S. lender during the third quarter. But earnings reached a record for the third consecutive quarter.

Home loan originations were $96 billion in the third quarter, according to earnings data released today. Business tumbled from the second quarter’s $129 billion but was still better than $51 billion a year earlier.

The level of business at Wells was lower than at Bank of America Corp. — which reported $98.4 billion in third-quarter production.

From January through September, volume at the San Francisco-based bank was $326 billion.

Third-party originations accounted for $45 billion of the latest quarter’s activity, and retail originations were $50 billion. Home-equity loans and lines-of-credit accounted for the remaining $1 billion.

Loan applications ended last month at $123 billion, dropping from $194 billion at the end of the second quarter — though, “Lower mortgage rates early in the fourth quarter are currently driving strong application volume, which was up 36 percent in the first 10 business days of the fourth quarter compared to the same period in the third quarter.” Refinances represented 62 percent of third-quarter application volume, lower than the prior quarter’s 73 percent.

The unclosed pipeline of first mortgages fell to $62 billion from $90 billion.

The mortgage unit’s owned servicing portfolio was $1.679 trillion at the end of last month, higher than $1.664 trillion at the end of June and $1.419 trillion a year earlier. The Sept. 30 total included $1.419 trillion in loans serviced for other, more than $1.394 trillion on June 30.

Wells Fargo held $232.6 billion in residential loans as of Sept. 30, lower than $237.3 billion three months earlier but well above $77.9 billion 12 months earlier.

In addition, $104.5 billion in junior liens were on the books, down from the first-quarter’s $107.0 billion but above $75.6 billion on Sept. 30, 2008.

Commercial mortgage assets eased to $103.4 billion from $103.7 billion on June 30, while real estate construction loans declined to $31.7 billion from $33.2 billion.

Mortgage banking income increased to $3.1 billion from $3.0 billion in the second quarter. A year ago, mortgage banking income was $0.9 billion.

“While mortgage originations and servicing revenue remained high, total mortgage banking noninterest income represented less than 15 percent of consolidated company revenue, reflecting the breadth and depth of the company’s business model,” Wells stated.

Third-quarter net income was $3.2 billion from all of Wells Fargo, fractionally up from the prior quarter. Earnings were $1.6 billion a year earlier.

It was the third consecutive quarter of record earnings for Wells Fargo. The latest quarter was impacted by more in pre-tax, pre-provision profit than in net charge-offs. Wells noted that extensive and successful loan modification efforts helped push pick-a-pay portfolio losses lower than originally estimated.

“Current projections show credit losses peaking in 2010, with consumer losses potentially peaking in first half of the year and gradually declining, absent further economic deterioration,” the report stated.

Wells said that last year’s acquisition of Wachovia “is exceeding our expectations.”

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