How big banks stabilized mortgage income despite volume falling

Large
financial
institutions
kicked
off
the

earnings
season
with
some
early-year
weakness
in
terms
of
the
volume
of
housing
finance
activity,
but
there
were
some
bright
spots
in
their
mortgage
results.

Some
of
the
margins
on
loans
were
higher
in
the
first
quarter,
and
that
contributed
to
stabilized
home
lending
income
even
at
Wells
Fargo,
which

announced
an
exit
from
the
correspondent
channel
last
year
and
saw
a
particularly
steep
drop
in
volume.

Gain-on-sale
margins
for
mortgages
improved
for
both
Wells
Fargo
and
JPMorgan
Chase
on
a
quarter-to-quarter
basis
and
outpaced
expectations,
a
report
from
Keefe,
Bruyette
&
Woods
stated.

Wells
recorded
a
287
basis-point
consecutive-quarter
GOS
gain.
While
that
may
not
be
indicative
of
broader
trends
due
to
a
particularly
low
number
in
the
previous
fiscal
period
and
some
other
idiosyncrasies,
JPMorgan
Chase
also
noted
an
uptick,
albeit
by
a
more
modest
83
basis
points.

“The
solid
Q/Q
margin
increases
were
a
bit
of
a
surprise,”
Bose
George,
Alexander
Bond
and
Thomas
McJoynt-Griffith,
analysts
at
KBW,
said
in
an
analysis
of
Wells
Fargo,
JPMorgan
Chase
and
Citibank’s
earnings
focused
on
their
mortgage
implications.

This
trend
may
help
to
explain
why
even
though
Wells’
originations
dropped
22%
from
the
previous
quarter,
home
lending
earnings
were
up,
rising
to
$864
million
from
$839
million.
The
first-quarter
number
nearly
matched
the
$863
million
reported
a
year
earlier.

The
financial
metrics
suggest
that
while
Wells’
correspondent
exit
has
cost
it
some
volume,
it
is
paying
off
in
terms
of
refocusing
the
company
on
retail
originations
that
have
higher
margins.

Loans
originated
by
third
parties
like
brokers
or
correspondents
can
help
with
volume
in
an
interest-rate
environment
that’s
not
conducive
to
refinancing
like
the
current
one,
but
those
channels
also

tend
to
be
susceptible
to
margin
pressure
in
such
a
market.

JPMorgan
Chase
first-quarter
numbers
suggest
it
also
may
be
adjusting
its
loan
mix
to
move
away
from
correspondent
and
put
a
little
more
emphasis
on
retail,
although
by
no
means
has
it
been
as
aggressive
as
Wells.
The
former’s
retail
share
inched
up
to
67%
from
65%
on
a
consecutive
quarter
basis.

During
that
same
period,
JPMorgan
Chase
saw
overall
volumes
slip
by
8%.
Correspondent
volume
dropped
by
12%
and
retail
fell
by
6%.
Net
revenue
from
home
lending
rose
to
$1.19
billion
from
a
little
over
$1.16
billion
the
previous
quarter
and
$720
million
a
year
earlier.

Citi’s
volumes
rose
by
11%
on
a
consecutive-quarter
basis
that
likely
came
from
market
share
it
gained
from
Wells
Fargo’s
retreat,
analysts
said.
The
former
company
did
not
break
out
numbers
for
its
smaller
home
lending
business
to
the
extent
that
Wells
and
Chase
do,
but
noted
there
were “improved
mortgage
margins”
in
its
retail
banking
segment.

Another
bright
spot
for
mortgages
in
the
bank
earnings
was
an
improvement
in
valuations
for
mortgage
servicing
rights,
presenting
a
contrast
to

write-downs
seen
at
some
companies
in
the
fourth
quarter.

JPMorgan
Chase’s
MSR
valuations
rose
by
1.8%
and
Wells’
rose
by
3%
on
a
consecutive-quarter
basis,
with
analysts
at
KBW
noting
that
this
was
in
line
with
expectations
given
interest
rate
changes
during
the
period.

Citi’s
involvement
in
the
MSR
market
has
been
relatively
small
since
it

sold
off
tens
of
billions
of
dollars
in
servicing
back
in
2017.