As reported uptick in Des Moines-area hiring planned, Wells Fargo announces falling profits

With more people than expected buying homes and refinancing mortgages, Wells Fargo reportedly plans to beef up its home lending staff in the Des Moines metro.

The banking giant issued $58 billion worth of new mortgages from July through September, a 9% increase over the previous quarter, an earnings report released Tuesday shows. Last week, Reuters reported that a leaked company memo revealed Wells Fargo will increase its mortgage staff — primarily in the Des Moines area and Minnesota.

The report said it was unclear how many new employees Wells Fargo would add. Across the country, the bank has already increased the staff that handles mortgage applications by 10% this year, local Wells Fargo spokesman Steve Carlson told the Register on Tuesday.

"We will continue to adjust our hiring models based on evolving market conditions," he wrote in an email, declining to specifically discuss the reported memo.

With about 13,500 workers, Wells Fargo is the largest private employer in the Des Moines metro area. The bank's home mortgage headquarters is in West Des Moines.

Expecting a downturn in the housing market, Wells Fargo laid off 1,000 home lending workers late last year, including 400 employees in Des Moines. But declining interest rates instead brought a surge in business.

Compared to its prediction at the beginning of 2019, the Mortgage Bankers Association's forecast for the year is up 11%. Refinancing activity has doubled compared to last year. New home mortgages are up 10%.

Guy Cecala, the chief executive officer of the trade publication Inside Mortgage Finance, said economic uncertainty led to the housing market's boost this year. Investors moved money from the stock market to more secure 10-year U.S. Treasuries, driving the rates in the bond market down. Home loan rates, tied to the Treasury rates, fell as well.

According to Freddie Mac, the rate on a 30-year, fixed-rate mortgage dropped from 4.9% in October 2018 to 3.6% currently.

With Wells Fargo accounting for about half of all new home mortgages in the country, Cecala said its decision to hire more workers is a sign that the market will remain buyer-friendly in the coming months.

"They're a great barometer of the overall mortgage market," he said.

Despite the surge in mortgages, Wells Fargo's earnings report showed profits falling from July through September. The bank made $4.6 billion in the third quarter, a 25% drop from its second-quarter earnings of $6.2 billion.

The biggest cause was $1.6 billion in legal expenses tied to Wells Fargo's 2016 lending scandal, when bankers admitted they signed customers up for checking accounts and credit cards without their knowledge.

The earnings report comes six days before Charlie Scharf, previously of Bank of New York Mellon Corp., takes over as the bank's new chief executive officer.

There is a downside to more mortgage activity for Wells Fargo: While lower interest rates drove more new mortgages than the bank expected, homeowners refinanced their loans at the lower rate, too, which means their monthly payments to the bank will fall.

According to the earnings report, the bank's net interest income dropped from $12.6 billion in the last three months of 2018 to $11.6 billion from July through September of this year.

"It's like you're treading water," Cecala said. "Even though you posted new loans, you're losing old loans."

In a conference call with investors, Wells Fargo Chief Financial Officer John Shrewsberry said he expects net interest income will drop 6% from 2018 to 2019.

"Rates have been volatile," he said, "and the yield curve has flattened significantly over the past year."

Tyler Jett covers jobs and the economy for the Register. Contact him at 515-284-8215 and tjett@registermedia.com. Follow him on Twitter @LetsJett.

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