Strong Quarter at Wells Fargo

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Wells Fargo & Co., already the biggest U.S. residential lender, reported its best production in six quarters. But business doesn’t look so strong going forward. Delinquency and earnings, meanwhile, improved.

Home-loan originations amounted to $128 billion in the fourth-quarter 2010, Wells reported in its earnings report released Wednesday. It was the best performance since the second-quarter 2009 — when originations totaled $129.0 billion.

Business during the third quarter was $101 billion, while fundings were $94 billion a year earlier.

Fourth-quarter retail originations rose to $70 billion from the prior period’s $53 billion, while correspondent-wholesale business climbed to $57 billion from $47 billion.

However, upcoming business is likely to tumble based on the unclosed pipeline — which finished last month at $73 billion versus $101 billion at the end of September. The pipeline fell as new applications declined to $158 billion from $194 billion.

The refinance share of new applications retreated to 73 percent from the third quarter’s 80 percent.

The San Francisco-based company closed $386.5 billion for all of last year, falling from $420 billion during 2009 — when it was the biggest U.S. residential lender. Odds are that Wells will retain the title in 2010.

The residential mortgage servicing portfolio concluded 2010 at $1.809 trillion. The portfolio was higher than $1.808 trillion at the end of the third quarter and $1.796 trillion at the end of 2009.

The Dec. 31, 2010, total reflected $1.429 trillion in third-party servicing, down from $1.433 trillion on Sept. 30. The owned-loan servicing portfolio climbed to $0.371 trillion from $0.365 trillion, and the sub-servicing portfolio slipped to $0.009 trillion from $0.010 trillion.

Residential first mortgage assets were $230.2 billion as of Dec. 31, higher than $228.1 billion on Sept. 30 and $229.5 billion on Dec. 31, 2009.

The home-equity portfolio was $110.6 billion at the end of the fourth quarter, lower than $114.4 billion at the end of the prior period. Junior-lien holdings fell to $96.1 billion from $99.1 billion three months earlier and $103.7 billion a year earlier.

Delinquency including foreclosures was 8.02 percent as of the end of December, down from 8.14 percent at the end of September. Delinquency peaked at 8.96 percent in the fourth-quarter 2009.

On the commercial mortgage side, the total servicing portfolio was cut to $520 billion from $548 billion and was $569 billion a year ago. Last month’s total included $408 billion in loans serviced for others, $99 billion in owned loans and $13 billion in sub-servicing.

Wells said it owned $99.4 billion in commercial real estate loans as of the end of last month, more than $98.8 billion at the end of the third quarter and $97.5 billion a year prior. Commercial construction loans were lower at $25.3 billion compared to the third quarter’s $27.9 billion and the fourth-quarter 2009’s $37.0 billion.

Mortgage banking income climbed to $2.8 billion during the final three months of 2010 from the third quarter’s $2.5 billion. But income was worse than the fourth-quarter 2009’s $3.4 billion. Servicing income fell to $0.2 billion from the third quarter’s $0.5 billion, but “net gains on mortgage loan originations/sales activities” jumped to $2.5 billion from $2.0 billion.

Net income at the holding company was a record $3.4 billion in the latest period. Earnings climbed from $3.3 billion three months earlier and $2.8 billion a year earlier.

Fourth-quarter results reflected an $0.5 billion provision for repurchase losses. Wells has $1.3 billion set aside for repurchase losses.

Repurchase demands and mortgage insurance rescissions were outstanding on 12,648 loans with original balances totaling $2.9 billion. Wells has made a big dent in this category since the end of 2009, when outstanding demands and rescissions stood at 14,248 loans with aggregate original principal of $3.7 billion.

Active, full-time equivalent employees at Wells Fargo & Co. numbered 272,200 as of Dec. 31, more than the 266,900 people employed at the company as of the end of September and the 267,300 total at the end of 2009.

Mortgage Expert

Mortgage Daily Staff