housing and the banking world

Very mixed messages and signals being given regarding the state of the banking world. Current results versus future expectations seem to reflect some disparate trends. How will the new normal play out!

For housing - on the plus side is the Fed's continuing intervention thus keeping rates low, the government's decision to continue HARP through 2015 as well as an apparently shrinking inventory. 

On the minus side - there is still a lot of volatility in the housing market, anecdotal evidence that the recent increase in purchase transactions have been based in investors not owners, and the lingering concern of a shadow inventory of foreclosures that are working their way through the system. 

Wells Fargo CEO Sees Housing Shortage Helping Mortgage Results

By Dakin Campbell - Apr 12, 2013

Wells Fargo & Co. (WFC) Chief Executive Officer John Stumpf said there aren’t enough homes for sale in some markets and that a rebound in sales, prices and construction will bolster future earnings.

“If anything today there’s probably a shortage of housing on the market,” Stumpf, 59, said on a conference call today. “It’s not true in every market and in every price range but when I’m out talking with Realtors and customers, the amount of supply, especially in the lower end or starter houses, there’s not a lot of supply out there.”

An improving housing market will boost home building and prices and limit costs tied to faulty or soured mortgages as more borrowers regain equity, Stumpf said. Wells Fargo is the biggest U.S. home lender and has set its sights on originating loans for purchases as refinancings slow.

Stumpf and Chief Financial Officer Timothy Sloan sought to assuage the concerns of analysts including Morgan Stanley’s Betsy Graseck and Paul Miller of FBR Capital Markets Corp. about whether the bank can withstand a slowdown in the refinancing market. San Francisco-based Wells Fargo got 23 percent of its first-quarter fee income from writing mortgages for purchases and refinancings.

“We’re seeing the housing market start to pick up, we’re seeing home builders building homes but there’s still not a lot of loan growth being created,” Miller said on the call. “Do you see that changing over the next couple quarters?”

Mortgage Outlook

Without predicting it will happen, Stumpf responded that mortgage production could get a boost if rates stay low, the economy improves and more households are created. To stimulate economic growth, the Federal Reserve has kept its benchmark interest rate near zero since December 2008, and is buying bonds to push down long-term rates.

Home prices in 20 U.S. cities climbed 9 percent from last March through January, according to a S&P/Case-Shiller index.

Wells Fargo reported a record $5.17 billion profit for the first quarter. Mortgage originations fell 13 percent from the fourth quarter to $109 billion and applications -- a gauge of future results -- fell 7.9 percent to $140 billion. Wells Fargo ended the quarter with $74 billion of pending mortgages, which Sloan called “very strong.”

The bank has added employees in certain markets to benefit from a housing rebound, and the bolstered capacity has helped the lender cut the time to close a loan from 90 days to 60 days, Sloan said on the call. Wells Fargo employed 274,300 people at the end of March, a 2 percent increase from the end of 2012.

Lenders will extend $1.43 trillion in mortgages this year, an 18 percent decline from last year, according to the Mortgage Bankers Association. Originations totaled $482 billion in the first quarter, the Washington-based group estimated in a March 22 report.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net