Wells Fargo Anticipates Drop In Mortgage Origination Business

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Wells Fargo & Co (NYSE:WFC) forecasts a slowdown in its mortgage origination business this quarter, with rising interest rates eating into demand for mortgage originations.

Wells Fargo Anticipates Drop In Mortgage Origination Business

Wells Fargo & Co (NYSE:WFC)’s chief financial officer Tim Sloan pointed out slowing mortgage originations since May, thanks to spikes in interest rates over summer.

Wells Fargo shows lowest originations in two years

Wells Fargo & Co (NYSE:WFC) is the country’s largest mortgage originator and the bank is considered a bellwether of the U.S. housing market.

With the slowing mortgage origination business, the bank anticipates to clock $80 billion in mortgage originations during the third quarter, as against $112 billion generated during the second quarter. The sharp decline indicates that for the first time in two years, Wells Fargo & Co (NYSE:WFC)’s quarterly home loans fell below the $100 billion mark.

About 3,000 in job cuts

During the two years ending first quarter, the nation’s second-largest bank by deposits ramped up employment in mortgage operations by 10,000 to about 18,000. However, with rising interest rates affecting the origination business, the bank has announced nearly 3,000 job cuts so far during the third quarter.

Wells Fargo & Co (NYSE:WFC)’s CFO, however, indicated while mortgage origination has slowed down, the U.S. housing market appears to be in good shape.

Other banks affected as well

The country’s largest bank by assets, JPMorgan Chase & Co (NYSE:JPM) indicated the bank expects to lose money on its mortgage origination business during the second half of the year. Besides, Bank of America Corp (NYSE:BAC) also indicated recently its decision to cut about 2,100 employees due to decline in refinancing activity.

Echoing concerns on the effect of increased mortgage rates over mortgage origination, Paul Miller, an analyst at FBR Capital Markets & Co in the recent research report terms ‘rate volatility is the enemy of mortgage banking’. According to FBR estimates, mortgage originations dropped to $1.654 trillion this year from $1.75 trillion posted in 2012. However, FBR projects the decline in mortgage origination to bottom out at $1.46 trillion in 2014 before showing improvement in 2015.

According to Mortgage Bankers Association, applications for mortgages are down over 50 percent from early May.


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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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