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Wells and Countrywide Still Neck and Neck
By Ted Cornwell
Over the past several years, Wells Fargo and Countrywide Financial have had a fairly steady lock on the top spot in rankings of mortgage servicers by market share.
Wells Fargo is currently the nation's largest mortgage servicer with a $1.44 trillion portfolio of managed home loans as of June 30, up 30% from a year earlier. The company now services home loans for ten million customers.
Wells Fargo's portfolio got a boost from the purchase of a sizeable chunk of Washington Mutual's government-backed and out-of-footprint home loan servicing late last year.
Countrywide is keeping up the pressure on Wells, however. Countrywide, which releases formal second quarter financial figures today, said in its June operational report that its servicing portfolio topped $1.4 trillion, up 18% on an annualized basis. Countrywide's portfolio consisted of 8.7 million home loans.
As usual, Countrywide has largely built its portfolio organically, relying almost entirely on the company's huge loan origination capacity to keep a steady flow of coming into its servicing shop.
With portfolios that big, managing the interest rate and credit risk becomes ever more important.
Wells Fargo's chief financial officer, Howard Atkins, noted in a conference call for investors and analysts that the company does not retain credit risk on its loan servicing portfolio, since the loans have been securitized. In addition, he said that almost 90% of the portfolio consists of loans made to prime credit quality borrowers.
However, he said "a small portion" of the loans sold by Wells Fargo are subject to early payment default risk. Wells Fargo added $35 million to its repurchase reserve in the second quarter to reflect its liability for estimated early payment defaults.
Mr. Atkins said Wells Fargo takes credit quality into account when valuing its mortgage servicing rights.
"We value and price our prime and subprime servicing based on expected repayment performance, so that we are properly compensated for the added work related to potentially higher delinquency in the subprime portfolios," he said. "We also price servicing based on origination channel, with better credit performance in our retail originations versus correspondent and wholesale channels."
Wells Fargo said that only 0.56% of its portfolio is currently in foreclosure.
Analysts will be scrutinizing Countrywide's second quarter results to assess credit quality trends. Though like Wells Countrywide is predominantly a prime quality lender, it may have more exposure to the credit problems in the subprime sector.
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