Could Higher Rates Kill the Housing Recovery?
Wells Fargo (NYSE:WFC) is the largest mortgage lender in the U.S. The bank was reportedly responsible for one in four home loans in the first half of 2013, down from as many as one in three in the first half of 2012, but still at the head of the industry. In the second quarter, the bank reported that net income climbed 19 percent on the year, with $112 billion in residential mortgage originations. Boosting profits was the fact that losses related to mortgage loan repurchases have been on the decline — just $65 million in the second quarter compared to $305 million in the first quarter.
All told, it’s been a pretty good year for Wells Fargo. Fueled in part by the recent boom in the housing market — buyers can’t seem to resist historically low rates — shares have climbed more than 19 percent this year to date. Through August, the stock had climbed as much as 24 percent YTD, but shares have slid about 3.5 percent over the past month.
Part of the reason for the recent decline is a perception that rising interest rates will negatively impact the bank’s mortgage origination business, which is a critical component of its success. The bank’s chief financial officer, Tim Sloan, said at the Barclays investor conference this week that originations could decline as much as 29 percent in the current quarter thanks primarily to rising rates.