Record earnings at Wells Fargo during Q3, as mortgages boom
Wells Fargo & Co. (WFC) saw earnings soar to a record $3.34 billion during the third quarter, as all business segments contributed to growth and mortgage operations saw their second best quarter in company history. The record quarter at Wells came despite a drop in revenues to $20.9 billion, below the $22.5 billion in Q3 revenue recorded one year earlier. Despite a mortgage crisis that is still making headlines, Wells Fargo said that it processed $194 billion in mortgage applications during the third quarter, its second highest quarter ever. The surge in application volume drove $101 billion in mortgage originations, up 25% from $81 billion in the prior quarter. The mortgage boom at Wells looks to continue into the fourth quarter, as well, with the lender reporting that its application pipeline at the end of September stood at $101 billion, up sharply from $68 billion at the end of June. In addition to a surging mortgage business, the lender reported improved credit quality for a third consecutive quarter. Net charge-offs for bad loans registered a still-high $4.1 billion during Q3, but were down 9 percent from the prior quarter and 24 percent below the company's Q4 2009 peak. Improving credit trends led Wells to release $650 million from the company's loss reserves. No foreclosure, buyback problems? Wells Fargo is one of the few major lenders that has not halted foreclosures during a spate of documentation challenges that have beset other competitors, including Bank of America (BAC). On Wednesday, Wells Fargo officials reiterated their stance that the company's servicing operations remained sound. "We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate," said chairman and CEO John Stumpf in a statement. "For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures." The company also downplayed any risks it may face with repurchase demands from investors, including wards of the government Fannie Mae and Freddie Mac, citing a decline in repurchase demands on 2006-2008 vintages. During Q3, the company absorbed $370 million in repurchase losses, down from $382 million during the second quarter. "The company continues to work with investors to resolve the outstanding demand pipeline," Wells Fargo said. Foreclosed assets soar While the bank has steadfastly maintained that its losses around mortgage loans are manageable, foreclosed assets at Wells increased by $1.1 billion during the third quarter, reaching $6.1 billion by the end of September. Much of the increase, according to chief risk officer Mike Loughlin, was due to commercial real estate assets and option ARM products tied to the legacy Wachovia platform Wells acquired roughly two years ago. Loughlin also stressed that much of the bank's inventory of foreclosed assets -- roughly $1.5 billion of that total -- were insured directly by Ginnie Mae, and increased as the bank successfully pushed loans towards what the bank characterized as "the final stage of the resolution process." Wells reported that delinquencies on residential single-family mortgages continued to increase slightly, as well, reaching 5.69% of the bank's residential loan portfolio by the end of September. Delinquencies increased slightly from 5.5 percent one quarter earlier, the bank said. Second lien delinquencies saw a similar increase from 2.36 percent to 2.40 percent. The bank's owned servicing portfolio topped $1.8 trillion during the quarter. Write to Jon Prior.