Wells Fargo's Mortgage Business: Is Refinancing Boom Waning?

Wells Fargo's Mortgage Business: Is Refinancing Boom Waning?Despite the overall growth in loans reported by Wells Fargo for the fourth quarter this past week, everyone’s talking about the top U.S. lender’s decline in mortgage originations and net interest margin.
And whether its a signal of the beginning of the end for the market’s refinancing boom.
Mortgage-banking income at Wells Fargo totaled $3.07 billion for the fourth quarter, up 30 percent from a year earlier.
But mortgage originations fell 10 percent compared to the third quarter to $125 billion.
Moreover, the bank unclosed-mortgage pipeline dropped for a second consecutive, falling 16 percent to $81 billion as of Dec. 31, from $97 billion as of Sept. 30.
Net interest margin — a key barometer of profitability — was 3.56 percent, down from 3.66 percent in the third quarter. That is representative of the impact of low interest rates on profits.
There is no doubt that lending remains profitable for Wells Fargo and top competitors JPMorgan Chase, Citigroup and Bank of America. But is that run of profits – spurred by Federal Reserve actions to expand lending  – finally easing.
The gains at Wells Fargo and other big banks may not be sustainable, since interest rates are expected to gently rise and the housing market continue to recover. Both scenarios are not likely to reverse.
“Rates really don’t have to go up very much to discourage a whole swath of people from returning to the housing market,” Lance Roberts, chief economist at StreetTalk Advisors, an investment advisory firm, told the New York Times.
On its path to top mortgage-lending status, Wells Fargo has vigorously expanded its home-loan business, fueling record profits. The company reported net income of $18.9 billion in 2012, up 19 percent from 2011.
However, most analysts are not exactly calling a reversal in the refinancing boom quite yet.
Paul Miller, an analyst with FBR Capital Markets, told the Wall Street Journal not to read too much into the mortgage-origination figures at Wells Fargo. He said that second and third quarters tend to be stronger ones for mortgage production.
“A lot of people are looking at the pipeline decline and saying it’s the beginning of the end,” Miller told the Journal. “I think it’s more seasonality than anything else.”

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