Mortgage overcapacity is hurting fee revenue at Wells Fargo

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It's a rough year for mortgage fees, according to the biggest U.S. home lender.

Margins will continue to narrow as banks and new competitors fight over a smaller pie, Wells Fargo & Co. Chief Executive Officer Tim Sloan said on May 31 at an investor conference in New York. Wells Fargo's revenue from home-loan originations and sales dropped 43% in the first quarter.

"We're going through a period of some level of overcapacity, and generally when you go through periods of overcapacity in an industry, pricing gets a little bit more competitive," Sloan said.

Home-loan originations fell last year, particularly in the refinancing business, as rising interest rates make mortgages more expensive. Adding to the pressure, more loosely regulated independent mortgage companies such as Quicken Loans Inc. have been gaining market share.

"Not only have we seen the size of the overall market decline as interest rates have risen, but also we've seen tighter production margins in that business due to a shift in our origination mix from the retail channel to the correspondent channel and increased competitive pressures in both channels," Wells Fargo Chief Financial Officer John Shrewsberry said at the firm's May 10 investor conference.

Wells Fargo's non-interest income from mortgage banking declined to $4.4 billion in 2017 from $6.1 billion in 2016.

Aside from challenges in mortgage fees, Sloan sees growth opportunities in credit cards and the wealth and investment-management unit.

Bloomberg News
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