How Rising Rates Are Hurting America's Largest Mortgage Lender, In One Chart

Tyler Durden's picture

While one can argue that both JPM and Bank of America posted results that were ok, with some aspects doing better than expected offset by weakness elsewhere, even if moments ago JPM stock just hit an all time high, there was little to redeem the report from the scandal-ridden largest mortgage lender in America, Wells Fargo. Not only did the company miss revenues significantly, reported $21.6bn in Q4 topline, nearly $1 bn below the $22.4bn consensus, but it had to reach deep into its non-GAAP adjustment bag to convert the $0.96 EPS miss into a $1.03 EPS beat (net of "accounting effect"), but the details of its core business were, well, deplorable, which perhaps was to be expected following the recent drop in new credit card and bank account growth, following last year's fake account scandal.

Incidentally, Wells Fargo reported its latest customer metrics alongside 4Q earnings, and in December the bank said that the retail public continued to shy away, as new checking accounts plunged 40%Y/Y while new credit card applications tumbled 43%.  On the other hand, deposit balances debit card transactions continued growing which probably is not a good sign, if only for the Keynesians in the administration: it means that consumers are saving.

But back to Wells results, which revealed that in Q4, the bank's ROE, one of Buffett's favorite indicators, fell to 10.94%. which was the lowest quarterly level posted in years accordint to the WSJ. "While the return had been grinding lower for some time, largely due to the declining interest-rate environment, the fourth quarter also marked the first, full reporting period since the bank’s sales-tactics scandal erupted in September."

More troubling however, was that in Q4, Wells overall profit fell to $5.27 billion, or 96 cents a share (excluding the various non-GAAP addbacks), down from $5.58 billion, or EPS of $1 in Q4 2015.

So back to Wells Fargo's retail banking business. Here the bank reported that while credit card outstandings rose 5% compared to $33.14 billion last quarter and jumped 8% from $34.04 billion in the year-earlier period, new accounts tumbled 52% to 319,000 from 667,000 last quarter and fell 47% from 597,355 in the year-earlier period, once again this is a reflection of the bank's ongoing legal scandals.

But it was the bank's bread and butter, mortgage lending, that was the biggest alarm because as a result of rising rates, Wells' residential mortgage applications and pipelines both tumbled, and after hitting multi-year highs in the third quarter when mortgage rates were likewise hugging multi-year lows, in Q4 Wells' mortgage applications plunged by $25bn from the prior quarter to $75bn, while the mortgage origination pipeline plunged by nearly half to just $30 billion, and just shy of all time lows recorded in late 2013 and 2014. Moynihan's explanation was redundant: "the pipeline is weaker because of fewer refi loans." This should not come as a surprise: just one month ago, Freddie Mac warned that as mortgage rates continue to surge, "expect mortgage activity to be significantly subdued in 2017."

Wells Fargo did not even have to wait that long, and as shown in the chart below, the biggest US mortgage lender is already suffering.

Expect even greater declines in the coming quarters should rates continue to rise.

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Lost in translation's picture

Oh noes!  Heaven forbid that hustlers/developers ever stop buildiing $500K stick-built crapshacks on every last available square foot of land!  Whatever shall we do with all of the water households don't use?  And where are millions of Muslims going to be able to live and chew khat all day?

Skiprrrdog's picture

No goat fucker is going to chew on MY cat...

Government needs you to pay taxes's picture

Anyone chews on my cat gets to meet my 50 Cal.

shovelhead's picture

Gee, who would of thought that being called out for criminal fraud could affect the bottom line at WF?

People just don't understand business models.

chunga's picture

The public is shying away? Only in the bananiest of banana republics is committing blatant identity theft, 2 million times, by a national fucking bank considered an "aggressive sales tactic".

WhyDoesItHurtWhen iPee's picture

When you controll the media, you controll the language. 

Falconsixone's picture

Check your pockets again.

jamesmmu's picture

The latest data indicate the the recent trump momentum vanished. DOW should follow. 

J J Pettigrew's picture

Higher Rates?
They are getting paid interest on their reseves at the Fed .....why? Is there some emergency with the Dow at 20k ?
Rates used to jump around 1/2 pt a week...and the banks set the prime and the fed followed...
this is all Fed expansion of powers via 'crisis' and central planners painting themselves into a corner with the brush strokes of unproven theories

LawsofPhysics's picture

Really, a bank gets to make you work harder to pay more interest on the money they "created" out of nothing with NO REAL WORK?!?!?


Show me a bank that pays their savers real fucking interest on savings that they loan out and then let's talk.

"banking", like "money" and "collateral" is long dead you stupid motherfuckers.


Dr. Richard Head's picture

I remember trying to "educate" people around me about fractional reserve banking, even talking to my friends in the banking community.  I was summarily dismissed by all. If they only knew.


BabaLooey's picture

"Educating fools is folly."

Akin to attempting to see through walls.

Like jumping off a cliff and flapping your arms and flying.

There are some people that you simply cannot reach.


wmbz's picture

As far as banks go, Wells Fargo is one huge lying cheating stealing stinking pile of shit!

Ain't that right, Sweet 'Ol Uncle Waren.

Lost in translation's picture

Oh, I dunno.  I think Farmer's Insurance gives WF a good run when it comes to being a lying, thieving, immoral, and thoroughly criminal enterprise. 

dlfield's picture

"...the retail public continued to shy away, as new checking accounts plunged 40%Y/Y while new credit card applications tumbled 43%."

Or is that just due to all the missing fake new account creation?

BandGap's picture

I bought a moderately priced house three years ago. Took forever to get a mortgage and my and my wife's credit ratings were both >800 and we put >20% down. It was hand to hand combat with the banks. I cannot imagine what it would take these days.

Fuck the banks.

So It Goes's picture

I hope Wells goes bankrupt.

Even though I had a checking account with them for many years kept in the multiple 6 figures, when I went to buy my house with over 20% down and a credit score over 800, they at first approved the loan and then reneged offering me a $50K credit line.  As the purchase was a short sale, I really had to scramble to get another lender.  That cost me an extra $7K.  Even before I made my first monthly payment to the 2nd bank, Wells bought the mortgage from them!

Wells is a total jerkoff company.  They have no idea what they are doing.  Needless to say, I pulled all my other accounts from them - they aren't going to be making any extra money off of me.  They can kiss my ass.  Again, I hope they go bankrupt.

HRH Feant's picture
HRH Feant (not verified) So It Goes Jan 13, 2017 2:27 PM

Those are my sentiments about We will Fuck you hard and you will like it Bank too! I can't stand Wells Fuckyou Bank (in case you couldn't tell).

However, there is another mortgage lender out there that is even worse. I know, hard to believe that is possible, but Sun West tops the assholes at Wells Fuckyou Bank. How? It is an Indian operation and all of the back office stuff is done in India and they hire Americans at call centers and for sales.

A few states have consumer protection laws that prohibit the bank from providing loan information from outside the country (meaning off shored in India) and legally require this mortgage company to have someone in the US provide that information.

Golly gee, just think, the same people that call 10 times a day with a heavy Indian accent offering to fix your computer because they are "from Microsoft" now have access to the financial records of Americans! What could possibly go wrong? I haven't seen any news articles about Sun West (yet), but I guarantee these fraudsters will be in the news. When? Sooner rather than later! If any mortgage broker tries to offer you a great deal and that deal includes Sun West don't walk away, RUN.

So It Goes's picture

Thanks for the additional info.

I wonder what happens when Fannie and Freddie go belly up.  I guess we just print more fiat.

I am Jobe's picture

The dream the dream, the  so called dream and divorce. Fuck America you poor Bitches, can't hold on to your family or kids and you want houses you cannot afford and things mae by slaves. White Women are so naive

LawsofPhysics's picture

"White Women are so greedy, envious, jealous, manipulative, decieptful..."

Kirk2NCC1701's picture

Dey be decieptful bitchez, i hears.

Dr. Richard Head's picture

I'm not sure about all of them, but my ex sure as hell is and was.  Dog damned Gold Digger -

I gave her the house in the divorce, she turned around and sold it immediately, and then I had to rush back into the school district for the kids.  Wouldn't you know that rates started rising as soon as I started the loan process.  Between the courts and their "alimony" and then the banking system I am losing my mind and my money. 


LawsofPhysics's picture

Yes, the entire system is stacked against productive people who practice GOOD BEHAVIOR.

If you behave badly, the system is set up to your benefit.

Dr. Richard Head's picture

It definitely makes me wonder why I act in a moral fashion and end up having it be to my detriment.  In this life it seems as if the crooks get the benefit of everything, while those who follow the non-agression principle tend to get bent over.  What a cruel joke the creator played on us all.  

chunga's picture

The meek shall inherit crabs and ice water! Evil always seems to win, and now is just running up the score.

HRH Feant's picture
HRH Feant (not verified) Dr. Richard Head Jan 13, 2017 2:38 PM

Too bad you ignored the advice, and example, set by President Trump. What was that you ask? Some of the best free advice he gave was about getting a prenuptial agreement prior to getting married. Why? It stops petty squabbles over stuff. The result? Trump has a good relationship with all of his ex wives and all of the children from those marriages have been raised to be decent and responsible human beings with a strong work ethic. I have been telling everyone I know, for years, that they should always get a prenuptial agreement prior to getting married. If some tart (or swinging dick) refuses to sign a prenup that would be a BIG RED FLAG in my book that the person was financially ignorant. Marriage is a legal contract and people should enter that contract in a responsible way and in a way that protects them and their present and future assets--just in case things don't work out.

So It Goes's picture

Keep your sanity.

I paid for law school for my ex - because that is what she wanted.  When we grew apart after 16 years - she began to SUE me.  She finally settled when I sold my business, moved 3000 miles away, and let her have custody of the 2 children.  At that point I was just above bankrupt.  My worst investment ever!!!!!

Well I'll be 65 soon and then no more alimony.  The feminist bitch from hell will be gone!!!!

Dr. Richard Head's picture

Congrats to you! I got married young because I impregnanted her.  Long story short, I made out alright and only have 9 months of alimony left.  Oldest is 16 and youngest is 8.  Attorneys are paid off, credit card debt, every dollar I borrowed from family.  In the end I made out OK, but a prenup would have made a lot of sense. 


Kirk2NCC1701's picture

Did you know that Blacks sold other Blacks (competing tribes) to white men, whose ships were owned and leased from Jewish owners?

Research it.  So what's changed?

Go to Wall St and bitch at GS.

Joe Sichs Pach's picture

Anthony Johnson: 


First US slave owner.  A black man.

HRH Feant's picture
HRH Feant (not verified) Joe Sichs Pach Jan 13, 2017 2:36 PM

It is still legal to inherit slaves. Where? Mauritania, Africa. 95% black.

TheVoicesInYourHead's picture

Wells Fargo er was shitty, but shares up 3%.

Everything is awesome!

Kirk2NCC1701's picture

Everything is Awesome, when you're part of a Team...

Hohum's picture

Mortgage rates won't continue to surge.  You can take that to the bank.

saveUSsavers's picture

1% uptick killed all those idiot fking homebuyers from SUCKING OUT THE LAST NICKEL OF EQUITY to buy more crap?


gatorengineer's picture

Good thing they can mark to unicorn or the drop in home prices would make them put up more reserves, as the number of underwater loans soars.

illuminatus's picture

How about a story about how low interest rates are hurting savers and retirees and pension funds that are counting on normal interest rates of at least 5%?? Or maybe that is not as significant as hurting mortgage lenders and bankers?

AZtravelnurse's picture

Karma...after many unsuccessful attempts to work with me on my upside down mortgage of 170.000 I finally gave up and walked away. They sold the house at the auction for 100.000 to a Cali investor...Thanks, WF!!

HRH Feant's picture
HRH Feant (not verified) AZtravelnurse Jan 13, 2017 8:33 PM

I feel your pain. Wells Fuckyouverymuch Bank did the same thing to me. I even had a legit short sale offer they REFUSED. It was for the current value of the property (back then) and, due to a second mortgage, they denied the short sale. They ended up auctioning my house and it sold for $128,000 which was well under the offer I had for a sale, for $170,000.

I had a full offer, in writing and Wells Fuckyouverymuch Bank turned it down. I came to the conclusion that they made more money writing off my house than they could by allowing me to keep it. That is some seriously sick and twisted thinking.

I learned a few things: never get a second mortgage. EVER.

Two: always give yourself a financial escape route. I learned to pay for everything in cash. I overpay on my current mortgage. I was lucky to get a 2.9% 30-year fixed refi (finalized in December) that is also transferable.

When I am ready to sell my house there will be plenty of buyers! Not only because of the property but because of the loan and the interest rate, which for a VA loan, is Assumable / transferable to a qualified party. Plenty of those folks in my area!

It is tough. I prepositioned my last refi back before the election because I thought things would get a little rough. Good timing on my part.