Wells Fargo chief financial officer Tim Sloan said that executives at the company believe lending has some room to grow going forward.
Although originations declined 10% between the third and fourth quarters of last year, executives said the company has started the first quarter of 2013 with a stronger pipeline than a year ago.
Some refinancing prospects have not yet been tapped, in part because Home Affordable Refinance Program loans take some time to originate, and purchases could improve in line with signs of a housing recovery.
But in response to questions about volume prospects, executives acknowledged some uncertainty as to how long volumes might be sustained.
If volumes do drop due to rising interest rates, Wells will draw on its mortgage team’s experience contending with business cycles, executives said. There also would be the usual offsetting countercyclical improvements in other business lines as a rise in rates should reflect an improving economy, they added.
When asked how quickly they might adjust expenses in such an event, they indicated it generally has taken about 60 to 90 days, operating on about a one-quarter lag.
The executives said the correspondent channel would remain an important part of their business, and although they have said they will not be expanding it, they will not be tightening it either.
They also said they remain pleased with gain-on-sale margins and believe mortgage banking profitability would hold up in a higher-rate scenario, but noted that because margins have been relatively high they could come down a bit.
Also during the call, Sloan noted that the company’s $379 million reserves for repurchases were down $462 million from in the third quarter. Executives said they feel current reserve levels are appropriate given their conversations with the agencies about repurchases.
Sloan also said that with a key settlement earlier this week has “resolved many significant matters related to the mortgage business” when it comes to liabilities and “absent significant deterioration in the economy,” the company may be able to decrease the extent to which it has to release its reserves going forward.
When asked whether the new qualified mortgage definition might affect the company’s involvement in jumbo lending in any way, executives said they have not yet had time to fully analyze the several hundred pages of regulation yet but expect to jumbo will remain strong balance-sheet product for the company as it is tied into some key client relationships.