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Wells Fargo Mortgage Referrals Hit by Scandal

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The fraudulent account scandal at Wells Fargo & Co. had an immediate impact on its home lending business, though quarterly mortgage production and earnings improved.

Prior to income taxes, Wells Fargo earned $8.3 billion from July 1 through Sept. 30. Earnings inched up from $8.2 billion the prior quarter but fell from $8.8 billion a year prior.

The San Francisco-based bank-holding company divulged the numbers, as well as other financial and operational results, Friday in its third-quarter 2016 earnings report.

Wells Fargo said that as a result of the scandal involving the fraudulent creation of accounts,
Carrie Tolstedt, who previously left the company, forfeited $19 million in unvested equity awards, won’t earn a bonus for 2016, won’t receive severance or retirement enhancements tied to her separation and won’t exercise vested options during a board investigation.

John Stumpf, who resigned his role as chairman and chief executive officer
on Wednesday, previously forfeited $41 million in unvested equity awards and will receive no bonus for this year.

Mortgage banking noninterest income rose to $1.667 billion
from $1.414 billion three months earlier and $1.589 billion one year earlier.

Third-quarter 2016 mortgage earnings consisted of $0.359 billion in servicing income and $1.308 billion in
net gains on mortgage loan origination and sales activities.

Residential loan originations were $70 billion during the three months ended Sept. 30,
climbing from $63 billion in the second quarter. Business also improved from $55 billion in the third-quarter 2015.

Wells Fargo explained that as a result of new cross-selling
restrictions, mortgage referrals from retail banking — which accounted for around 10 percent of this year’s originations — tumbled 24 percent from August to September.

For the first-nine months of this year, mortgage originations amounted to $177 billion.

Retail lending accounted for $37 billion of the latest quarter’s production, and correspondent made up
$32 billion. The remaining $1 billion in volume was home-equity loans and home-equity lines of credit.

Refinance share was 42 percent in the third-quarter 2016, widening from 40 percent the prior period.

Home-lending activity is likely to hold in the fourth quarter based on applications, which rose 5 percent from three months earlier to $100 billion in the third quarter. In addition, the application pipeline expanded 6 percent to $50 billion.

The residential mortgage servicing portfolio was reduced to $1.578 trillion from $1.599 trillion as of mid-2016. At the same point last year, Wells Fargo serviced $1.669 trillion.

Third-party servicing accounted for $1.226 trillion of the September 2016 balance.

In addition, Wells Fargo had an $0.004 trillion subservicing portfolio.

Residential assets totaled $326.794 billion as of Sept. 30, 2016, dipping from $326.934 billion at the end of the second quarter but rising from $325.903 billion at the same point in 2015.

The most-recent residential holdings included $278.689 billion in first mortgages and $48.105 billion in junior-lien mortgages. Nonconforming mortgages accounted for $159.9 billion of residential holdings.

Wells Fargo serviced $0.607 trillion in commercial mortgages, creeping up from $0.606 trillion at the end of the previous quarter and growing from $0.591 trillion as of the same date in 2015.

The commercial mortgage servicing portfolio included $0.477 trillion in loans serviced for others.

Another $0.008 trillion in commercial mortgages were subserviced as of the most-recent date.

Commercial real estate loans owned by Wells Fargo stood at $153.563 billion as of Sept. 30, 2016. CRE holdings grew from $151.707 billion three months earlier and $142.962 billion a year earlier.

Last month’s CRE total was comprised of $130.223 billion in commercial mortgages and $23.340 billion in construction loans.

Wells Fargo concluded September 2016 with $239 million in mortgage repurchase liability, reducing the total from $255 million in the prior quarter.

Headcount closed out the latest period at 268,800 people. Staffing stood at 267,900 at the end of the second quarter and 265,200 at the end of the third-quarter 2015.

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