Asset purchase help counter slump in mortgage lending

by MPA15 Oct 2015
The world’s largest bank by market value posted a third-quarter profit that beat analysts’ estimates – but also set aside 91% more money to cover bad loans compared to the same quarter the year earlier.
Wells Fargo & Co. announced a third-quarter profit that beat analysts’ estimates on gains in interest income from asset purchases and new loans; while setting aside $703 million to cover bad loans in the quarter – caused in part by a deterioration in the energy industry.
Asset purchases have helped augment growth in areas such as credit cards, auto loans and business financing, and counter a slump in mortgage lending, according to Bloomberg News.
U.S. lenders originated $363 billion of home loans in the third quarter, a 21 percent increase from a year earlier, according to forecasts from the Mortgage Bankers Association.
That’s down from $395 billion in the second quarter.
Wells Fargo, the largest U.S. mortgage lender, originated $55 billion of home loans in the third quarter, and ended September with $34 billion in pending applications. The bank accounted for about 14 percent of all originations in the second quarter, according to Inside Mortgage Finance data.
In a statement issued by the San Francisco-based bank, net income climbed 1.2 percent to $5.8 billion, or $1.05 a share, from $5.73 billion, or $1.02, a year earlier. The average estimate of 27 analysts surveyed by Bloomberg was for earnings of $1.04 a share. Revenue also beat estimates, rising 3.1 percent to $21.9 billion.
Chief Executive Officer John Stumpf has used deposit growth - more than $250 billion in the three years through June - to support asset purchases from firms including General Electric Co. Last quarter, the bank also used derivatives to lock in higher income by converting floating rates into fixed payments to take advantage of the Federal Reserve’s delay in raising interest rates.
“They have been very proactive about going out into the market” and buying loans, Shannon Stemm, an analyst at Edward Jones & Co. in St. Louis, told Bloomberg News. “They have the flexibility and the capital strength to be able to do it.”



Is TILA-RESPA a good or bad thing long term?