Wells Reaches $2 Trillion

San Francisco-The addition of $379 billion of mortgage servicing rights from Wachovia boosted Wells Fargo's portfolio of managed home loans to $2.1 trillion, 39% higher than a year earlier.

Wells valued that portfolio of loans serviced for others at 0.87% of the dollar volume. The delinquency rate on the prime credit quality portion of that portfolio, at 4%, was up by one-third from the company's third-quarter delinquency rate, however. The prime portion of the servicing portfolio consisted of 5.7 million loans totaling over $1 trillion, Wells Fargo said.

Overall, Wells said the foreclosure rate continued to rise on its owned mortgage servicing portfolio to 1.41%, though Mr. Atkins said this remains below the industry average.

Wells said it provided foreclosure prevention solutions to 498,000 customers in 2008.

Wells executives, in a recorded conference call, also outlined efforts they are making to "de-risk" the dicey home loan portfolio acquired in the Wachovia deal and other loan portfolios.

Analysts have been eyeing how Wells plans to manage Wachovia's portfolio, and the fourth-quarter reports for the two firms suggest that Wells is trying to front-load losses as much as possible.

Wells took $37.2 billion of credit writedowns on a $93.9 billion segregated portfolio of "high risk" loans from Wachovia, the majority of them pay-option ARMs. Wells said that by wiping out 40% of the value of those loans on the company's books, it is reducing the need for future loss provisions.

Wells also wrote down the value of Wachovia's securities portfolio by $9.6 billion. The combined credit allowance at the two companies stood at $21.7 billion at year-end, equal to 320% of nonperforming assets, a ratio much higher than most banks.

Wells said it has no plans to seek additional TARP capital from the Treasury Department. The combined company has $129.5 billion of home-equity loans and lines of credit on its books.

"Until home prices stabilize, we continue to expect higher losses in the home-equity portfolio," Mr. Atkins said.

Wells increased its loss reserve by $5.6 billion, and warned that an abrupt and unexpected decline in economic activity late last year exacerbated the already-difficult banking environment. Wells reported Wachovia's results separately, because the acquisition closed Dec. 31. Wachovia lost $11.2 billion in the fourth quarter. Wells Fargo said its Tier 1 Capital plus its allowance for loan losses equaled 9.4% of the combined firms assets at year-end, up from 8.5% in 2007.

In fact, Wells took in $116 billion of mortgage applications in the fourth quarter of 2008, up 158% from the year-earlier period. And application volume in December marked the fourth highest monthly application volume in the company's history. (And December is normally a slow month for mortgage lending.)

The combined Wells/Wachovia had $71 billion of mortgage applications in its pipeline at year-end. That was the largest quarter-ending pipeline volume for Wells Fargo since June 2005.

Wells estimates that it now accounts for 12% of the mortgage origination market, up from 10% a year ago. In the fourth quarter, Wells originated $50 billion of home loans. Refinancing accounted for 68% of the loans. For the full year, Wells originated $230 billion of residential mortgages.

Chief financial officer Howard Atkins said that mortgage application volume during the first two weeks of January was running 20% higher than in December.

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