Wells Fargo CFO: Accounts scandal hit our mortgage referral business

Also reports problems in FHA property conveyance

Wells Fargo missed fourth-quarter earnings expectations as it continues to clean up from its massive fake accounts scandal announced back in September 2016.

According to its release from early Friday morning, Wells Fargo posted total revenue of $21.6 billion, which is down $746 million from the third quarter 2016, but consistent with a year ago.

In a release of the earnings call transcript, provided by Seeking Alpha, the Chief Financial Officer of Wells Fargo, Tim Sloan, reports that very same scandal is dragging down its mortgage referral business.

“Our existing customers have continued to use their accounts and we’ve seen higher deposit and credit card balances and increased credit and debit card transaction volume which drives near-term revenue,” Sloan said.

Sloan said the impact is still being felt and that the decline in the rate of new account openings may impact the pace of future revenue growth.

“In addition, we’re also tracking the impact to our other businesses, while businesses that are not reliant on retail banker referrals have not been significantly impacted, lower banker referrals continue to affect businesses such as mortgage,” he added.

Referrals accounted for approximately 9% of mortgage originations in 2016, Sloan said. He added that the bank expects lower referrals in the fourth quarter will reduce funding volumes in the first quarter by approximately 2.5%.

Overall, mortgage banking results decreased $250 million from third quarter and included a $163 million decline in mortgage servicing income primarily due to higher unreimbursed servicing costs.

“These costs increased $109 million in the fourth quarter as a result of actions we took to work through an aged population of FHA foreclosed properties, where we’ve had challenges in repairing and conveying them back to HUD,” Sloan said.

Since then, the bank increased its estimated cost to resolve those properties in the fourth quarter, and expects these actions will reduce unreimbursed servicing costs significantly in 2017.

Residential mortgage origination volume was $72 billion, up $25 billion or 53% from a year ago and up $2 billion from the third quarter.

As previously reported, Wells Fargo still expects origination volume in the first quarter to be roughly in line with the volume in the first quarter of 2016 but down from fourth quarter due to seasonality in the purchases market and lower refi volume driven by higher interest rates.



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