Executives at U.S. Bancorp expect mortgage refinancings will continue to decline during the first half of this year and they are looking for purchase mortgage activity to pick-up in the spring.
U.S. Bancorp chairman, president, chief executive Richard Davis noted the consumer sentiment is better going into 2014 but it has not shown up in loan demand yet, except for home equity lines of credit.
Sentiment is a leading indicator and spring will tell if the second half will be better for loan growth, he told analysts and investors during a conference call on the bank's fourth quarter earnings.
U.S. Bancorp has over 3,000 offices in 25 states and it originated $8.6 billion in residential loans in the fourth quarter, down 44% from the prior quarter.
Mortgage banking revenue fell to $228 million, down 30% from the third quarter.
The Minneapolis-based banking company settled mortgage repurchase demands with Freddie Mac in December at a cost of $53 million. The settlement left the bank with $83 million in repurchase reserves, after moving $30 million in reserves into mortgage banking revenue.
Bank executives told analysts they have no have intention of reducing that reserve going forward.
U.S. Bancorp does most of its jumbo mortgage lending through its private wealth management unit and some bank branches in California.
Davis stressed that the qualified mortgage rule has not had much of an effect on U.S. Bancorp. The bank still does interest-only jumbos and jumbos with debt-to-income ratios higher than 43%.
One executive noted that they mitigated the risk on jumbos via higher downpayments. "We believe we have offsets built into the underwriting," he said.