TheMReport

50 | TH E M REP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING DEPARTMENT LOCAL EDITION Profits Rise at Wells Fargo as Housing Perks Up THE BANK CONTINUES TO SEE GROWTH DURING 2014. CALIFORNIA // Wells Fargo reported strong financials for the second quarter, driven in part by an uptick in mortgage lending and ongoing improvements in credit quality. The megabank reported $5.7 billion in net income for the quarter, up 4 percent over $5.5 billion a year prior. For the year's first half, Wells Fargo took in $11.6 billion in net income, up nearly $1 billion compared to the same period in 2013. "Our strong results in the second quarter reflected the benefit of our diversified busi- ness model and our long-term focus on meeting the financial needs of our customers," said John Stumpf, chairman and CEO of the bank. "Our results also reflected strong credit quality driven by an improved economy, especially the housing market, and our continued risk discipline." Coming from the nation's biggest name in mortgages—and the first megabank to release Q2 results—Wells Fargo's report serves as the first sign of how consumer lending fared through- out the quarter. Next on the schedule is Citigroup on July 14, followed by JPMorgan Chase on July 15. On the home lending side, Wells Fargo reported mortgage originations of $47 billion, up from $36 billion in the first quar- ter, with applications pulling up $12 billion to a total of $72 billion. The bank's application pipeline also nudged up to $30 billion as of the end of June, compared to $27 billion at the end of the first quarter. Though an improvement from a slow first quarter, those figures are all still less than half of where they were a year ago, demonstrating again how much housing has cooled. Meanwhile, the bank reported another $500 million reserve re- lease, reflecting improvements in credit quality as a result of the housing recovery. Charge-offs on bad loans also declined from the first quarter, falling to $717 mil- lion from $825 million before. "Credit performance contin- ued to improve in the second quarter as credit losses remained at historically low levels, non- performing assets continued to decrease, and we continued to originate high-quality loans," said Mike Loughlin, chief risk officer. Loughlin added that the bank continues to expect future reserve releases, though not as high "as the rate of credit improvement slows and the loan portfolio continues to grow." Nationstar Temporarily Blocked from GSE Mortgages Last Year THE SERVICER FENDS OFF SPECULATION THAT IT'S STILL SUSPENDED FROM THE GAME. TEXAS // Citing people familiar with the matter, the Wall Street Journal reported that Nationstar, a large mortgage processor with millions of mortgages in its portfolio, was temporarily suspended last year from buying the rights to home loans backed by Fannie Mae and Freddie Mac because of concerns that the servicer was undercapitalized. A report released last week by the Office of the Inspector General (OIG) for the Federal Housing Finance Agency (FHFA) outlined the possible risks that non-bank servicers could pose to the greater housing market. To illustrate a point, the OIG pointed to a specific instance where a non-bank servicer had fallen below the minimum threshold capital requirement required by Fannie Mae. The servicer was then prevented from acquiring the right to service Fannie Mae mortgages. To rectify the situation and address liquidity concerns, the unnamed company sold off servicing rights to an undisclosed number of mortgages. Though the OIG did not name names in its report, people familiar with the matter revealed to the Wall Street Journal that the servicer in question was Nationstar. For its part, a spokesman for the company released a state- ment highlighting the company's "strong working relationships with Fannie Mae and Freddie Mac." The spokesman said the company currently meets "all capital requirements for conduct- ing business." The Journal report drew atten- tion to the fact that "Nationstar hasn't closed a major purchase of servicing rights since February 2013, when it purchased the rights to service $215 billion in loans from Bank of America, including about $97 billion of loans backed by Fannie Mae, Freddie Mac, and Ginnie Mae," the article said. The company maintains that the lack of a major purchase is by design and not because of any restrictions placed on them, and affirms that they have the ability to operate within the normal course of their business. BofA Mortgage Settlement at an Impasse DOES FEDERAL ENCOURAGEMENT TO PURCHASE THE FAILED MERRILL LYNCH MEAN BANK OF AMERICA SHOULD GET SOME SLACK? SERVICING Continued on 52

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