Wells Fargo executives said they support federal regulators' effort to expand mortgage credit availability but cautioned that it will produce little benefit for the bank's, or the industry's, bottom line.
Federal Housing Finance Agency Director Mel Watt is moving toward easing and clarifying Fannie Mae and Freddie Mac's loan repurchase rules and lowering the government-sponsored enterprises' guarantee fees.
Such steps will address the industry's problem of mixed signals from policymakers, Wells Fargo Chairman and Chief Executive John Stumpf said.
"Some things in the past created less harmony," Stumpf said Friday morning on a conference call to discuss second-quarter results. "You have low rates on one side encouraging borrowing and putbacks to the GSEs on the other side that make lenders less willing to lend money. Watt is trying to get everyone on the same page and we are participating in that."
Some incremental changes have already helped to open the credit box, Stumpf said. "As we get more clarity," the CEO said, "we can make more conforming loans that serve more customers."
Still, any changes coming out of Washington might not have much impact on lenders' financial results, Wells Fargo Chief Financial Officer John Shrewsberry warned analysts and investors.
"Capturing that first-time buyer, that lower credit quality customer," he said, is not likely to increase the size of the mortgage market in 2014 and 2015. "And it is not likely to have a big impact on the earnings of mortgage originators."
Wells Fargo, the nation's largest mortgage lender, reported a 30% pickup in residential originations in the second quarter (the start of homebuying season) from the prior quarter, to $47 billion. But there was no such recovery in gain on sale margins.
Applications in the pipeline totaled $30 billion as of June 30, up from $27 billion at the end of March.
"The second quarter benefited from a seasonally stronger purchase market with 74% of our originations coming from home purchases compared to 66% last quarter," Shrewsberry said.
Gain on sale margins averaged 1.41% in 2Q, down 20 basis points from the first quarter. "Those margins look reasonable to us and there is no reason to believe it will be markedly different in the near future," Stump said.
Wells Fargo's servicing portfolio held steady at $1.8 trillion. Servicing fee income climbed to $1.03 billion from $938 million in the first quarter and from $383 million a year earlier.
The CEO attributed the rise in servicing income to fewer foreclosures and lower servicing expenses.