Commercial banks dumped $71.8 billion in mortgage-backed securities in the third quarter, and the rapid growth of their one- to four-family loan portfolios slowed to a crawl in response to an abrupt change in interest rates during the summer.The Federal Deposit Insurance Corp. reported that banks reduced their MBS investments by 8.9% to $744.8 billion in the third quarter. In addition, bank holdings of one- to four-family mortgages grew by only 3.6% to $1.3 trillion in the third quarter after growing at a 24% annual rate from the second quarter of 2002 to the second quarter of 2003. Mortgage rates increased by 100 basis points from late June to early August. Meanwhile, bank servicing portfolios benefited from the uptick in rates. The FDIC reported that servicing fee income at banks and thrifts jumped from $1.1 billion in the second quarter to $4.3 billion in the third quarter. Thrift institutions accounted for only $148.2 million of the servicing fee income.

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