As Goes California, So Goes Wells Fargo

Wells Fargo may be the nation's second biggest mortgage lender, but about one-third of the residential home loans it holds in portfolio come from California.

In a recent 10K filing, Wells Fargo revealed that 33% of its single-family mortgage loans, totaling $44.6 billion, are backed by California homes.

The California home loans account for 14% of Wells Fargo's total loan portfolio, including non-mortgage assets. Wells noted in the filing that the loans are mostly from California's larger metropolitan areas, with mortgage loans from no single metropolitan area accounting for more than 3% of total loans on the bank's books.

Wells also revealed that residential mortgage loans with interest-only payment features accounted for 26% of its portfolio at year-end 2005. Wells noted that it does not offer payment option adjustable-rate mortgages.

Wells Fargo's commercial mortgage portfolio also was heavily concentrated in California properties. California real estate backed $15.1 billion of commercial mortgages for Wells Fargo. Texas accounted for $3.8 billion of commercial real estate loans and Arizona accounted for $2.5 billion.

Investment analysts at CreditSights said Wells Fargo reported strong financial results last year, but the company faces challenges maintaining that momentum this year.

Wells Fargo outperformed many of its peers last year by selling off lower yielding adjustable-rate mortgages and replacing them with higher yielding assets.

That boosted net interest margin in a difficult environment, but the waning of the mortgage boom could hamper the firm's earnings growth going forward, according to CreditSights. Additional challenges could be a turn for the worse in credit quality and a continuation of the flattish yield curve.

Last year, Wells Fargo sold $48 billion of lower yielding ARMs, taking $119 million of sale-related losses in the process. The company also sold $17 billion of debt securities last year, taking $120 million of losses.

Some of the ARMs were replaced with higher-yielding ARMs.

In the SEC filing, Wells Farggo also advised that mortgage banking revenue can be volatile from quarter to quarter.

With $482 billion of assets, Wells Fargo is the nation's fifth largest bank in terms of asset size. The company had 153,500 full time employees at the end of last year. The company reported net income of $7.7 billion, or $4.50 per share, last year. Wells Fargo Home Mortgage produced revenue totaling $4.9 billion in 2005, up about 10% from the year before.

SNAPSHOT: Wells Fargo's One-to-Four Family Mortgage Portfolio - States with the Highest Concentration

State Dollar Volume California $44.6 Billion Minnesota $6.9 Billion Florida $5.9 Billion Colorado $5.4 Billion Arizona $5.2 Billion SOURCE: Wells Fargo (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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