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Wells Fargo commitment to MSRs is unclear

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Wells Fargo may be hiring mortgage staff, but a recent spate of mortgage servicing rights sales contradicts the firm’s public commitment to mortgage servicing, analysts with Compass Point Research & Trading said Monday.   

"WFC specifically pointed out the company continues to hire mortgage personnel and invest in the business," Compass Point wrote in a research note.  

The note says while management has publicly viewed servicing as valuable at Wells Fargo (WFC), "the company's actions seem to contradict these statements (lower correspondent lending, selling MSRs)."

The same research firm says Wells Fargo sold $423 million worth of MSRs.

If those were sold at the same valuation as the rest of its portfolio, it would equate to a portfolio of $60 billion in unpaid principal balance.

"We know they sold $12 billion of reverse mortgages to Walter Investment Management, but do not know what happened to the rest. During the earnings call, WFC management deferred a question addressing the sale of the MSR," Compass Point added.

Still, Compass Point believes Wells Fargo will remain a strong player in the mortgage market, although they see the bank slowly pulling back to manage the size of its MSRs.

WFC marked up its MSRs from 67 basis points to 70 basis points, according to Compass Point data.

"However, if we strip out decreases in the MSR valuation due to foreclosure costs and other items, WFC's MSR would have marked up 9% to 73bps."

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