Wells Fargo Eyeing Mortgage Servicing Sales

Wells Fargo has been watching some recent sales transactions involving mortgage servicing rights and the giant mortgage company may test the waters soon.

Chief financial officer Tim Sloan told investors Tuesday morning that Wells Fargo is “pleased” about the development of a MSR market. “We may from time to time want to test that market,” he said.

Wells Fargo has a $1.9 trillion residential MSR portfolio. In the current low interest rate environment, servicing rights have generated a tremendous amount of refinance volume. “Generally, we get the first call (from the borrower) as the servicer,” Sloan said at the Citi 2013 U.S. Financial Services Conference in Boston.

If mortgage rates start to move up, it would require the banking company to hold more capital against its MSR portfolio.

The San Francisco-based bank already maintains a capital buffer for its MSR portfolio in case of a spike in interest rates. And when it comes to MSR sales, Sloan emphasized that “we don’t feel like we are under any pressure at all.”

Sloan also told investors that loan production volumes are “coming down” and the decline is also reflected in industry data.

“We have recorded very strong earnings in the third and fourth quarters. Our expectation is that mortgage revenues are going to decline from the fourth to the first quarter,” Sloan said

In early January, Wells Fargo reported that single-family originations totaled $125 billion in the fourth quarter, compared to $139 billion in the third quarter.

Mortgage banking income total totaled $3.1 billion in the fourth quarter, up 30% from a year ago.