Rising Interest Rates And Stiff Competition Are Causing Wells Fargo Mortgage Originations To Plummet

Wells Fargo mortgage originations continue to plummet as interest rates have risen over the last several months.

Wells Fargo says that it originated $46 billion in mortgages in the third quarter. This is down 22% from last year’s total of $59 billion during the same time period.

The overall total isn’t the lowest in recent memory for Wells Fargo though. Wells Fargo mortgage originations were $43 billion in mortgages in the first quarter of this year.

This is not good news for Wells Fargo. This is the third quarter Wells Fargo mortgage originations have continued to heading south.

There doesn’t appear to be much of a light on the horizon with the Federal Reserve raising interest rates to a seven-year high.

The bank says that first mortgage applications also fell by 22% in the third quarter, compared to last year.

Wells Fargo Mortgage Originations Continue To Plummet Year After Year

Wells Fargo mortgage originations are also trending down across the board. In the third quarter of 2017, Wells received $73 billion in mortgage applications. 

Wells Fargo’s origination pipeline of unclosed mortgage applications is also on the decline. Unclosed mortgage applications fell from $29 billion at the end of the third quarter last year to $22 billion at the end of this year’s third quarter.

The bank doesn’t identify specifically what is causing the decline. Wells Fargo simply states that the declines are due to “seasonality.”

Regardless, the bank is definitely seeing far less refinance applications and refi originations than it has in the recent past.

In the first quarter of this year, Wells’ originations were 65% purchase and 35% refi. In the third quarter, the refi share has fallen significantly to just 19% of Wells’ originations, compared to 81% in purchase mortgages.

Overall, Wells Fargo is also making less money in mortgages. Wells’ mortgage banking income fell from $1.05 billion in the third quarter of last year to $846 million in the third quarter of this year, a decline of approximately 20%.

Fewer Wells Fargo Mortgage Originations Are Causing Greater Servicing Profits

On the positive side of things, Wells’ mortgage banking income was up over the second quarter, when the bank reported $770 million in mortgage income.

The bank’s third-quarter net mortgage servicing income was $390 million. This is down from $406 million in the second quarter. On the other hand, servicing income was up from $309 million during the third quarter of last year.

Wells Fargo credits an improvement in secondary market conditions for the rise in mortgage income over the second quarter.

One secondary market improvement is the bank’s recent foray back into mortgage securitization. Earlier this week, it was revealed that Wells plans to securitize a series of mortgages for the first time since 2008.

And it appears it won’t be the last time.

Wells Fargo said that it is holding $249 million of non-conforming mortgages on its books. The bank has designated for sale in anticipation of the future issuance of residential mortgage-backed securities.

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