Wells Fargo (WFC), the largest mortgage lender in the U.S., originated $89 billion new new home loans during the third quarter, up 39% from the previous three months. Income at the bank increased 21% during the quarter on a better performance from its mortgage department. Applications surged too at the end of the traditional buying season, climbing 55% from the second quarter. But activity was still slow compared to last year. Originations dropped 12% from the third quarter of last year, while applications were down 13%. The slowdown has been felt industry wide as unemployment remains elevated, lenders tighten underwriting standards, new regulations such as risk retention remain uncertain and the economy overall continues to drag. The Mortgage Bankers Association lowered its origination estimate for next year as well because of the difficulties. The trade group expects new loans to total $900 billion in 2012, the lowest level since the late 1990s. Wells Chief Financial Officer Timothy Sloan said the growth seen in the third quarter could spill over into the last period of the year as $84 million in applications remain in the pipeline. "Loan growth didn't come until later in the quarter," Sloan said in a conference call with investors Monday. "A lot of what's happening in mortgages has yet to come through." The bank also cut outstanding claims to repurchase soured mortgages by more than half from its peak just over one year ago. Total outstanding representation and warranty claims at Wells shrank to $2.02 billion in the third quarter, down nearly 10% from the previous quarter. Outstanding claims declined every quarter since the $4.31 billion peak in the middle of 2010. The bank is also working through its inventory of foreclosures and delinquencies. Roughly 7.4% of its servicing portfolio is in foreclosure or delinquency. Sloan said the average time it takes to foreclose on a property is 16 months. "And for primary residences, 25% have already abandoned the property," Sloan said. Write to Jon Prior. Follow him on Twitter @JonAPrior.