The nation's largest mortgage originator, Wells Fargo (NYSE: WFC ) , reported on Friday that its underwriting volume fell by 29% last quarter as a result of higher interest rates.
"We're in a transitional period in our mortgage business," Chief Financial Officer Timothy Sloan said during a conference call with analysts. "With the increase in mortgage rates, our mortgage origination volume declined [last] quarter, particularly refinance activity."
Prior to the third quarter, Wells Fargo had achieved seven consecutive quarters in which it underwrote more than $100 billion worth of mortgages. That was more than twice the quarterly volume of the runner-up, JPMorgan Chase (NYSE: JPM ) , and well in excess of three times the amount reported by Bank of America (NYSE: BAC ) , which was once the leader in the market.
As Sloan indicated, the culprit was higher interest rates. Since the beginning of May, rates on a 30-year fixed rate mortgage have risen from below 3.5% to roughly 4.5% -- though they recently settled around 4.2% after the Federal Reserve said it would wait before starting to taper its support for the economy.
The trend in rates has had the biggest impact on people looking to refinance existing mortgages. Across the country, refinance applications are down by approximately 60% since the first week of May. At Wells Fargo, the percent of mortgage applications that relate to refinancing has dropped from 72% of all applications in the third quarter of last year all the way down to 36% today.
The good news is that there doesn't appear to be any significant impact on the housing market. At JPMorgan, which also reported earnings on Friday, purchase-money mortgages were up by 57% on a year-over-year basis. And comments from Wells Fargo CEO John Stumpf underscore the industry's optimism (emphasis added):
While the recovery remains uneven, there are many positive signs, including increased small business optimism and a dramatic improvement in household net worth, with household leverage now lower than any time since 2002, which provides capacity for consumer spending and borrowing going forward. The housing market also continues to demonstrate strong momentum. While, as expected, higher rates reduced mortgage refinancing activity this quarter, home price appreciation remains strong and affordability remains excellent.
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