Historically low interest rates sparked an increase in refinance mortgage applications that helped Wells Fargo originate $89 billion in new residential loans during the third quarter of 2011. But troubled existing loans continue to impact results, with a 61% increase in Wells Fargo's mortgage repurchase provision.
The volume, split almost evenly between retail and the correspondent/wholesale channels, was up 39% from the second quarter, but down 12% from 3Q10.
Refinance mortgages accounted for 74% of Wells Fargo's $169 billion in residential loan applications in 3Q11; that's up from a 55% refinance share off $109 billion in residential loan applications in 2Q11. Compared to the year-ago quarter, application volume was down 13%, when 80% of the $194 billion in applications were for refinance loans. Wells Fargo said it has an unclosed pipeline of $84 billion at quarter-end.
Wells Fargo's $1.8 trillion servicing portfolio remained virtually unchanged both on a quarterly and annual basis. The fair value of Wells Fargo's mortgage servicing rights portfolio was about even from a year ago, at $12.4 billion in 3Q11, but down 16% from 2Q11.
San Francisco-based Wells Fargo reported net income of $4.1 billion, up 21% from 3Q10 and up 3% from 2Q11.
Noninterest income from net gains on mortgage origination and sales activities was $803 million, down 60% from $1.98 billion in 3Q10, but up 8% from 2Q11. Servicing income nearly doubled from a year ago, $1 billion compared to $516 million in 3Q11, and is up 17% from 2Q11.
Combined, total mortgage banking noninterest income was $1.83 billion in 3Q11, down 27% from $2.5 billion in 3Q10, but up 13% from 2Q11. The results included a $390 million provision for mortgage repurchase losses, up 61% from 2Q11.
Residential first mortgage charge-offs, net of recoveries, were $821 million in 3Q11, down 20% from $1 billion in 3Q10 and down 10% from 2Q11.
Commercial mortgage charge-offs, net of recoveries, were $96 million in 3Q11, down 56% from 3Q10 and down 25% from 2Q11.
Total foreclosure assets were $4.94 billion in 3Q11, down 20% from 3Q10's $6.13 billion, but up slightly from $4.86 billion in 2Q11.
