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Mixed Bag for Lenders.(Wells Fargo & Co.)(Washington Mutual Bank)(Countrywide Financial Corp.)(Statistical data)
NEW YORK -- The third quarter produced a double whammy for some mortgage lenders. Falling rates pushed down mortgage servicing values. But with rates remaining higher than they have been for most of the time in recent years, there wasn't much loan origination ballast to offset the servicing losses.
Still, most lenders managed the pull through the third quarter with reasonably solid results, considering the circumstances.
Perhaps no company better illustrated the ins and outs of the mortgage servicing business in the third quarter than Wells Fargo. Wells is the nation's largest mortgage servicer.
But Wells Fargo Home Mortgage saw its revenue decline by $502 million to $923 million. Wells Fargo noted that in the third quarter of last year, the home loans group benefited from a $356 million recovery from an impairment reserve for the value of mortgage servicing rights. That wasn't the case this year.
Wells Fargo said that the reduction in the value of MSRs coupled with hedging gains resulted in a net loss of $86 million in the third quarter of 2006.
But Wells Fargo has good reason to stay in the mortgage servicing business. The company's servicing portfolio now generates about $1 billion in quarterly cash flow. In addition, Wells believes the mortgage portfolio is a key element of its cross-sales strategy to market additional products to existing customers.
The company said its owned mortgage servicing portfolio increased by 42 over the 12-month period. "Our owned real estate servicing portfolio grew to $1.33 trillion, up $215 billion for the quarter," said Mark Oman, senior executive vice president of the home and consumer finance group, in a company earnings release. "This growth included $172 billion of servicing acquired during the quarter. Our economies of skill and scale in servicing and our ability to cross sell and retain our servicing customers has made us a leader in a consolidating industry."
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