Wells Fargo & Co (WFC), Federal National Mortgage Association (FNMA): Feds Blink on New MBS Risk Retention Rules

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Wells Fargo mortgage production falling
In the long run, Wells Fargo & Co (NYSE:WFC) and other big lenders will benefit from the new risk retention rules. The bank is the largest originator of mortgage loans in the U.S., and the risk retention rule takes some of the regulatory burden and uncertainty of regulatory risk off the table.

This comes at a good time for Wells Fargo & Co (NYSE:WFC) since its residential loan production is declining. The bank’s financial head honcho recently said that rising interest rates over the summer have slowed down the housing market, affecting Wells Fargo & Co (NYSE:WFC)’s lending activity.

CFO Tim Sloan anticipates mortgage originations to be $80 billion in the third quarter, down from $112 billion in the second quarter. However, he was quick to point out the bank has a diversified business model that will provide earnings growth through other businesses. The bank’s high roller said that two commercial real estate loan portfolio acquisitions during the quarter — worth $6.4 billion — should support the outfits’ revenues.

The proof is in the numbers, of course, so investors should keep their eye on the company’s next earnings announcement, due next month. That being said, the company’s home loan production will rise again as the housing market takes the next step in its recovery. A less stringent risk retention requirement means the big bank will readily securitize and sell its portfolio of new residential loans.

The bottom line
In the final analysis, the proposed risk retention rule will allay the concerns of market observers who believed that a more stringent rule would have been another impediment to the housing recovery and hampered lending activity.

Investors with a long-term view should prepare for the next phase of the housing market recovery by carefully picking and choosing their spots in the real estate finance sector. Federal National Mortgage Association (OTCBB:FNMA) and Federal Home Loan Mortgage Corp (OTCBB:FMCC) will continue to sit in limbo until lawmakers figure out what to do with the oversized orphans. Meanwhile, the Wells Fargo & Co (NYSE:WFC) wagon is coming down the road.

The article Feds Blink on New MBS Risk Retention Rules originally appeared on Fool.com and is written by Kyle Colona.

Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo.

Kyle is a writer from the New York area. He has a broad background in legal and regulatory affairs in the finance sector, and his extensive body of work is accessible on the web. Colona is not a financial advisor. This article is for informational purposes only and should not be construed as financial advice.

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