Wells Fargo’s 1Q20 income drops 89% primarily due to $3.1BN ‘reserve build’

Wells Fargo & Company reported net income of $653 million, or $0.01 per share, for the first quarter of 2020. That’s down 89% from the first quarter of 2019. The drop was driven by billions in enhancement to their reserves and other pandemic outbreak related factors.

“First quarter results were impacted by a $3.1 billion reserve build, which reflected the expected impact these unprecedented times could have on our customers,” said Chief Financial Officer John Shrewsberry in a release, and “an impairment of securities of $950 million” driven by economic and market conditions including the lower interest rate environment, and one fewer day in the quarter. 

“We maintained strong liquidity and capital, and we are committed to using our financial strength to help support the U.S. economy, while still operating in compliance with the asset cap under the Federal Reserve consent order,” Shrewsberry said.

In the first quarter, Wells originated $48 billion of residential mortgage loans and reported a $463 million gain from the sale of $709 million of residential mortgage loans.

Yet, illiquid market conditions and a widening of credit spreads affected mortgage its banking income, which fell 51% to$379 million, compared to 4Q2019. The decline resulted from unrealized losses on loans held for sale, specifically $143 million on residential mortgage loans and $62 million on commercial mortgage loans. 

Additionally, Wells recorded $192 million of higher losses on the valuation of its mortgage servicing rights asset from primarily prepayment assumptions.

Quarter-end loan balances were $1 trillion at March 31, 2020, up $47.6 billion from December 31, 2019.

Strikingly, 1-4 family investment property, first and junior lien mortgage loans decreased $1.9 billion, as pay downs more than offset originations and draws of existing lines.

Wells Fargo CEO sums up COVID-19 relief for customers, employees, communities

Alongside first quarter results, Well Fargo’s leadership reported on the company’s wide-scale COVID-19 relief efforts to the communities and thousands of employees across the bank’s footprint.  

“Wells Fargo plays an important role in the financial system and the economic strength of our country,” particularly in these unprecedented times, said Charlie Scharf, Chief Executive Officer of Wells Fargo.  “We have taken comprehensive steps to help customers, employees and communities.”

Customers – Wells suspended residential property foreclosure sales, offered fee waivers, and provided payment deferrals, among other actions, he said. For example, Wells deferred more than 1 million payments and provided over 900,000 fee waivers for more than 1.3 million consumer and small business.

Commercial clients – Utilized over $80 billion of their loan commitments in March alone.

Staff – Approximately 180,000 employees are now able to work remotely. Wells is also providing “additional cash payments and actions to help ensure their safety for employees whose roles require them to go to the office; Added benefits include financial support for child care and increased medical benefits.

Community support – The Wells Fargo Foundation is directing $175 million in charitable donations “to help address food, shelter, small business and housing stability,” and assist public health organizations fighting to contain the spread of COVID-19.

“We will continue to evaluate this fluid situation and take additional actions as necessary,” Scharf said. “I’m incredibly proud of the efforts our employees are making across Wells Fargo to support our customers and each other, particularly those on the front lines.”

Guild Mortgage partners with eOriginal to expand eClosing capabilities

Guild Mortgage and lending fintech eOriginal have come together to offer enhanced electronic loan closing and signing capabilities to Guild’s customers. eOriginal’s eNote technology will allow customers to review and sign most of their mortgage notes remotely through the lenders eClose platform.

“This is a critical time for the mortgage lending industry in needing to find more efficient and secure solutions for completing a mortgage transaction while limiting personal contact and keeping people safe,” said Mary Ann McGarry, CEO of Guild in a release. “Adding the ability to sign the note electronically is a big step toward a complete eClosing.”

The San Diego based independent lender also will incorporate eVault, a secure eOriginal platform designed to manage electronically signed assets. Once the customer signs eNotes, eVault transfers the document to the other loan origination parties. Warehouse banks or investors, including Fannie Mae and Freddie Mac receive eNotes directly from eVault.

Guild currently offers a secure eClose solution powered by its proprietary technology and DocuSign to make the signing of closing documents fast and convenient. eClose features enhanced security protections through an encrypted electronic envelope accessible only by user authentication. Guild’s eClose is a hybrid process that still requires “a select few documents signed in ink at closing.”

Guild executives say the past few years the company has been working to expand capabilities by enhancing internal systems and integrating new technology.

“The current environment should provide the motivation for more lenders to move with increased speed toward the digital mortgage,” said. Lisa Klika, senior vice president and chief compliance officer at Guild. “We continue to work to get closer to a fully electronic closing process.”

These tools will significantly expedite its digital mortgage origination process at a time when many traditional, paper-based mortgage origination processes are limited due to the restrictions put in place during the COVID-19 pandemic. eOriginal’s eNote technology is currently used by Fannie Mae, Ginnie Mae and MERSCORP Holdings. 

”Guild’s decision to enable remote signing of electronic notes as part of their closing process is timely, and provides the foundation for scale across all forms of digital closings,” said Brian Madocks, CEO of eOriginal.

Founded in 1960, Guild Mortgage Company originated $21.71 billion in total loan volume in 2019. It operates branches in 30 states and services more than 237,000 loans, which totaled $49.43 billion as of December 31, 2019.

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