Wells Just Reported The Worst Mortgage Number Since The Financial Crisis

When we reported Wells Fargo's Q3 earnings back in October, we drew readers' attention to one specific line of business, the one we dubbed the bank's "bread and butter", namely mortgage lending, and which as we then reported was "the biggest alarm" because "as a result of rising rates, Wells' residential mortgage applications and pipelines both tumbled, specifically in Q3 Wells' mortgage applications plunged by $10bn from the prior quarter to $73bn, while the mortgage origination pipeline plunged to just $29 billion", and just shy of the post-crisis lows recorded in late 2013.

Fast forward one quarter when what was already a grim situation for Warren Buffett's favorite bank, just got as bad as it has been since the financial crisis for America's largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (EPS small beat, revenue small miss), Wells just reported that its 'bread and butter' is virtually gone, and in Q1 the amount in the all-important Wells Fargo Mortgage Application pipeline plunged by a whopping 23% to just $23 billion, and at the lowest level since the financial crisis.

And while Wells' mortgage applications, a less forward looking indicator, was not quite as dire, it too was just shy of fresh post crisis lows at only $63 billion, just barely above the post-crisis low hit one year ago.


The lagging mortgage originations number, which usually trails the pipeline by 3-4 quarters, was nearly as bad, plunging 39% sequentially from $72 billion to only $44 billion, "due to higher rates and seasonality." Since this number lags the mortgage applications, we expect it to post fresh post-crisis lows in the coming quarter.


Adding insult to injury, as one would expect with the yield curve flattening to 10 year lows recently, Wells' Net Interest margin - the source of its interest income - declined to a one year low, missing expectations once again. This is what Wells said: "NIM of 2.84%, down 2 bps LQ as the negative adjustment related to leveraged leases, and growth in average deposits, were partially offset by lower average long-term debt and a modest net benefit from all other growth, repricing and variable item." And visually:


And finally, there was the chart showing the bank's consumer loan trends: these reveal that aside for credit cards, the broad decline in credit demand continues.


What these number disturbingly reveal, is that the average US consumer can not afford to take out mortgages at a time when rates rise by as little as 1% or so from all time lows. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.


tahoebumsmith LawsofPhysics Fri, 01/12/2018 - 12:02 Permalink

It's definitely QE in a different form they can't stop because the Ponzi has to keep the clothes on otherwise the entire shit show will become totally naked for everyone to see. The amount of fiat being thrown at this globally is now on pseudo steroids coming in in different forms. The equity markets are purely being goosed to justify their failures to cover up the truth with fake valuations and stock values all on paper nothing of real value exists anymore especially the truth.

In reply to by LawsofPhysics

Osmium Fri, 01/12/2018 - 09:18 Permalink

Mortgage applications are down because everyone is rich from investing in the "markets" and are paying cash for their homes.  This is Bullish!

JRobby espirit Fri, 01/12/2018 - 09:54 Permalink

But, but, but!!! They are Warren's favorite bank!!!!!

If anyone out there still has the daily rate sheets from Countrywide and Wells from 04, 05, 06, 07 you see they were toe to toe on products and rate matrix.

But Countrywide was evil and Wells is Warren's favorite bank. And that's how the game works.

In reply to by espirit

Cloud9.5 Fri, 01/12/2018 - 09:23 Permalink

Well, it is time to bring out those balloon mortgages again.    That will throw real estate in to high gear.  Back in the good old days, a gal working in a nail salon could own five million dollar properties on Miami Beach.

chubbar Oldwood Fri, 01/12/2018 - 10:31 Permalink

So you are "long" the US FRN, might be right or might be wrong. One thing for sure, saving dollars in your mattress or in the bank IS an investment strategy, just like buying gold or bitcoins, and requires one to have an opinion on the future value of the currency/money they are saving in.

In reply to by Oldwood

LawsofPhysics Fri, 01/12/2018 - 09:29 Permalink

To review;  Wells Fargo (and other primary dealer banks) has had access to FREE MONEY (thanks to zirp) and still has access to trillions at 1.25% that it has been loaning to people/corporations at 4% or HIGHER and they STILL CANNOT BE PROFITABLE?!?!?!?

Not to mention all the savers getting fucked with 0.1% on the money they keep at these crimminal clearing houses.

What the fuck people?  Fuck it, cut the cord, roll the motherfucking guillotines already!!!

shizzledizzle Fri, 01/12/2018 - 09:33 Permalink

Haven't seen much news about foreclosures. In the market I watch I have noticed a slow and steady uptick in foreclosures. Not saying it is reaching a dangerous magnitude or anything just that they have been slowly increasing. On a related note I am going to a courthouse property auction next week to try and purchase some property next to mine in the hopes of keeping some shitbox mobile home and shitty neighbors off of it. Wish me luck!

gatorengineer Fri, 01/12/2018 - 09:42 Permalink

good thing housing is booming or we might be in trouble...

Wait till the Trump tax increase kicks in in blue states......  alot more walkaways will come out of it.