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Correspondent Business Drags Down Wells Originations

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Home loan originations at Wells Fargo & Co. fell for the second quarter in a row, and a third consecutive decline is in the offing. A 20 percent drop in correspondent business drove the overall reduction.

First-quarter residential loan production was $109 billion, according to earnings data released Friday.

Business slid from $125 billion in the fourth quarter — a period when business was already down 10 percent from the prior quarter.

Mortgage fundings also slowed from the first-quarter 2012, when originations amounted to $129 billion.

Retail originations accounted for $59 billion of the latest activity, down from $63 billion in the prior period.

Correspondent-wholesale originations tumble to $49 billion from $61 billion in the fourth quarter. Wells Fargo announced in July plans to shut down the wholesale channel, indicating that the first-quarter drop was primarily concentrated in correspondent lending.

Wells Fargo’s new mortgage applications declined to $140 billion from $152 billion in the fourth quarter, while its mortgage pipeline fell to $74 billion in the first quarter from $81 billion. Both metrics suggest lower second-quarter originations.

The total residential servicing portfolio was $1.860 trillion as of March 31. The servicing portfolio fell from $1.873 trillion as of Dec. 31, 2012, but has grown from $1.840 trillion as of a year prior.

The most recent number included $1.486 trillion in mortgages serviced for others, $0.367 trillion in owned loans serviced and $0.007 trillion in sub-servicing.

Thanks to its strategy of retaining some new originations, Wells Fargo’s first mortgage investment portfolio grew to $252.307 billion from $249.900 billion at the end of last year and $228.885 billion at the same point in 2012.

Junior lien holdings were reduced, however, to $72.543 billion as of the end of last month from $75.465 billion at the end of last year. As of the same date last year, this category totaled $83.173 billion.

The home-equity portfolio, which is included in both the first- and junior-lien portfolios, was reduced to $87.298 billion from $90.427 billion as of the end of the fourth quarter.

The bank’s commercial mortgage servicing portfolio edged down to $524 billion from the prior quarter’s $527 billion and the year-earlier quarter’s $526 billion. The March 31 number reflected $404 billion in loans serviced for others, $106 billion in loans that are owned and serviced and $14 billion in sub-servicing.

Commercial real estate mortgages on the San Francisco-based company’s balance sheet slipped to $106.119 billion from $106.340 billion three months earlier but inched up from $105.874 billion a year earlier.

Assets also included $16.650 billion in CRE construction loans, off from the prior quarter’s $16.904 billion and $18.549 billion in the same quarter in the prior year.

Total outstanding repurchase demands were cut to 7,840 loans for $1.794 billion from 8,680 loans for $1.944 billion at the end of December. Outstanding demands had been as high as $3.84 billion in the third-quarter 2010.

Following $0.1 billion in loan sales, an $0.3 billion change in estimate and $0.2 billion in losses, repurchase liability finished March at $2.3 billion.

Non-interest income from mortgage banking was $2.794 billion, off from $3.068 billion in the prior period and $2.870 billion in the first-quarter 2012.

Wells Fargo earned a record $5.2 billion across all businesses. Earnings were $5.1 billion in the fourth quarter and $4.3 billion in the first-quarter 2012.

Income before taxes was $7.6 billion, better than $7.2 billion in the prior quarter and $6.6 billion a year earlier.

There were 274,300 people employed by Wells Fargo as of the end of last month. Staffing expanded from 269,200 as of the end of last year and 264,900 as of the same point last year.

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