Scores of banks, including Associated Banc-Corp, Fifth Third and EverBank Financial, will likely suffer double-digit declines in mortgage revenue in the second half of 2013, compared with the first six months, according to Sterne Agee. The firm based its estimates on the steep decline in refinancing that resulted from a spike in interest rates.
Bankers have been echoing that sentiment in recent weeks, noting that the mortgage market went through a metamorphosis after long-term rates spiked in late June.
"Things have changed in the mortgage business," Kevin Kabat, Fifth Third's chief executive, said during the $123 billion-asset company's quarterly conference call last month.
"If you are a heavy refi shop, you're going to be down hard," says Matthew Kelley, an analyst at Sterne Agee. "If you're adding capacity to the purchase business, or you are more skewed toward purchase volume, you might be able to put up numbers better than the forecast."
Industry-wide mortgage revenue is expected to decline by 37% compared to the first half of this year, according to the Mortgage Bankers Association.
Associated, of Green Bay, Wis., and Fifth Third, of Cincinnati, are likely to suffer similar declines, Sterne Agee projected. For Fifth Third, that would represent a $168 million decline in revenue.
Fifth Third's executives said they knew a drop-off would come, adding that they were taking steps to adjust. "We have plans to take out temporary labor, contract labor, reduce our [full-time employees and make] reductions in overtime," Dan Poston, Fifth Third's chief financial officer, said during July's call.
A Fifth Third spokesman declined to comment further.
Other banks have been looking to swing the ax and rightsize their mortgage operations. Large banks such as Citigroup in New York and Wells Fargo in San Francisco have cut staff and community banks such as Berkshire Hills Bancorp in Pittsfield, Mass., has also discussed plans for layoffs.
SunTrust in Atlanta is projected to suffer a more modest 9% drop in mortgage revenue in the second half of this year. The $172 billion-asset company has "always [had] been a good purchase mortgage business," William Rogers, SunTrust's chairman and CEO, said during a quarterly conference call last month.
SunTrust never abandoned the purchase side of its mortgage business, even when refinancing was booming, Rogers said late last year at a conference in New York hosted by Goldman Sachs. "If you look at us and think about some of the markets that we operate in and some of the recovery in those markets, we are pretty bullish on what we see on the purchase side," Rogers said at the time.
A SunTrust spokesman declined to comment further.
There could be some outliers, and a few community banks reported improvement in mortgage originations during the second quarter.
At the $4.1 billion-asset Union First Market Bankshares, originations rose 16% in the second quarter, compared to a year earlier, "despite the increase in mortgage interest rates," Rob Gorman, the Richmond, Va., company's chief financial officer, said during an Aug. 22 conference hosted by Raymond James.
By and large, the mortgage business should be on the downslide for the rest of this year, including refinancing and new home purchases, says Mark Hanson, a mortgage consultant in Berkeley, Calif. Rising interest rates have scared off new home buyers and institutional investors, he says.
"Applications to buy houses are way off, new home sales have plunged, and the level of interest in talking to [real estate agents] is way off," Hanson says. "It won't take a lot to put these institutional investors on the sidelines."
Still, when full-year totals are tallied 2013 may look like a good year, Hanson says. But that would largely reflect the short and sudden burst of activity that took place in the early summer.
"The second quarter should have been fantastic for purchases because rates were still at historic lows and they didn't really surge until the last two weeks of June," Hanson says. "People thought they'd be left in the wake and they panicked."