Boston, MA 11/01/2013 (wallstreetpr) – Wells Fargo & Co (NYSE:WFC) had seen a drastic drop of 29% in its mortgage business in the third quarter. This was on account of the Federal Reserve policy changes. The Federal Reserve had announced a skew of measure aimed at reviving the economy. One measure initiated in September 2012 was aimed at reducing mortgage rates. The mortgage rates bottomed out in November touching a low of 3.31%. This was criticized by analysts and media alike but it worked. Sales of new and existing homes increased and by one estimate nearly 2.5 million homeowners got positive equity on their homes. Refinance activity rebounded and boosted revenues and profits of all banks engaged in this activity. Wells Fargo reported 7 consecutive quarters of $100 billion plus in mortgage originations. The Federal Reserve tried to taper the purchase of mortgage backed securities and Treasury bond. The mortgage market crashed and Wells Fargo suffered the biggest fall. The five largest mortgage originators lost 21% in mortgage volumes.
The central bank has now taken steps to correct this and announced that it will not taper of its purchase activity. This is on the back of the effects of the government shutdown and also slow pace of economic recovery. The news has sent mortgage rates southward and the average rate for a 30-year fixed rate mortgage stands at 4.1%, lowest since June. The effect of this change may take some time to be seen in the market and we hope the central bank does not reverse the decision again.
The other good news about the company relates to its settlement of mortgage claims with the U.S. government. Wells Fargo could swing the deal below $1 billion. These claims are related to bad mortgages the company sold to Fannie Mae and Freddie Mac before the financial crises. The company had settled some claims directly with Fannie Mae out of its reserves.
Such news will add to the positive sentiments about the company on the stock markets.
