Wells Fargo – Mortgage Division

Wells Fargo reported a huge profit in their mortgage division recently.  Supported by a high amount of volume of both refinance and purchase mortgages.  Helped by low rates, higher home values, and an improvement in the quality of borrowers most banks are seeing huge gains in their mortgage division.   However rates don’t have to go up that much to reverse this trend.  I would guess that if rates jumped only 1% from these current levels you would see a dramatic and significant drop in mortgage activity.  It appears to me that the government has started the process of “encouraging” banks to enter the mortgage market and lender their own money.  This process started 12-18 months ago and is moving at a slow pace.  Currently most mortgages are done under Fannie, Freddie or FHA and very little bank/private backing.  Over the last 12-18 months fees to do Fannie, Freddie or FHA loans have increased and underwriting standards have become more strict.  Over the next 12-36 months it would not surprise me to see the return of an Alt-A market where banks go outside the lending standards of Fannie, Freddie and FHA.