Bank of America Reports a 45% Increase in Mortgage Income

Bank of America Corp. had third-quarter mortgage banking income of $589 million, up 45% from $407 million one year ago.

First-mortgage originations totaled $16.9 billion in the quarter, up over 23% from $13.7 billion one year earlier, benefiting from the low interest rate environment following the Brexit vote.

Home equity loan volume increased to $3.1 billion from $2.8 billion in the third quarter of 2015.

Bank of America retained three-quarters of its first-mortgage originations for the period on its balance sheet, similar to what it did during the second quarter. By not selling mortgages in the secondary market, "there's a near-term impact on earnings. But long term we think that's a better strategy for our shareholders given the risk profile of the mortgages that we are originating and putting on the balance sheet," said CEO Brian Moynihan during a conference call. By keeping the loan, the income is recognized over time as the mortgage is paid down.

Production income consisted of $212 billion from the consumer banking unit and $4 billion listed under other mortgage banking. This was down from a total of $257 billion one year prior.

On the servicing side, the consumer banking unit contributed $85 billion in income while $451 billion is listed under other mortgage banking. In the second quarter last year, the consumer banking segment added $67 billion in servicing income while other mortgage banking added $151 billion.

But for the most recent period income from other mortgage banking, which includes its asset liability management activities, was reduced by a $102 billion representations and warranties provision and by $61 billion related to internal transfers of mortgage loans and net gains or losses on intercompany trades.

When asked for more information about the low-down-payment mortgage program announced in February, "We have a limited product…for $0.5 billion a year of production just to give us a more competitive product there. And we will do some other things, but we are going to stick with the core credit. So we will stick with what our customers need and what we think the right business for the company is," Moynihan said.

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