Wells Fargo profit beats, but mortgage business slows
By Rick Rothacker and Jochelle Mendonca
(Reuters) - Wells Fargo & Co (WFC.N: Quote) reported a higher-than-expected 23 percent rise in first-quarter profit on Friday, but its mortgage business showed further signs of slowing and net interest margins continued to shrink.
The fourth-largest U.S. bank by assets has emerged from the financial crisis as the leading U.S. home lender as other banks have pulled back from a business that burned them during the housing bust. But the bank has now seen a decline in home loans for two consecutive quarters as fewer borrowers refinance at low interest rates.
"It's going from great to good," said Sandler O'Neill analyst Scott Siefers. "This is a business that is simply tailing off, and it's going to be very challenging to sustain."
Wells made $109 billion in home loans during the quarter, down from $129 billion in the same quarter a year ago and less than the $125 billion in loans extended in the fourth quarter.
Fees from mortgages dropped 2 percent to $2.8 billion from a year earlier and were down 9 percent from the fourth quarter.
The bank's pipeline of applications for home loans that have not yet closed was $74 billion at the end of the first quarter, down from $81 billion at the end of the fourth quarter.
"Our guess is that mortgage origination levels and revenues will continue to come down," Chief Financial Officer Tim Sloan said in an interview.
He said the bank was seeing an increase in loans taken out by customers buying homes, which will help offset a decline in refinancings. Refinancings accounted for 65 percent of mortgage applications in the first quarter, down from 76 percent a year ago. Continued...