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US mortgage mess hits government credibility

There’s rarely been a better time to be a mortgage banker in the US.

When Wells Fargo reported the best quarterly earnings in its history last month, printing $3.3 billion for the third quarter of 2010, its mortgage business was one of the highlights. Volumes and margins in mortgage lending are strong. The bank had its second-highest quarterly level of mortgage applications ever at $194 billion, up 35% on the second quarter of 2010. Refinancing largely drove this, as it also did abundant applications at the other banks. A strong pipeline of originations was already bearing fruit in October and looking promising for the rest of this year and the start of the next.

Given the gap between the 5.46% quarterly weighted average note rate on Wells Fargo’s managed servicing portfolio and the prevailing 4.35% rate on new conforming Freddie Mac 30-year fixed-rate mortgages, there is still a huge incentive for all mortgage borrowers that can refinance to do so.

The Mortgage Bankers Association predicts $920 billion of refinancing this year. And while this is below the $1.3 trillion executed in 2009, the MBA sees new purchase originations rising from $480 billion in 2010 by 30% in 2011 and up to $877 billion in 2012, if home prices stabilize.

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