Chase reports drop in mortgage originations, but rise in MSR value

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JPMorgan Chase's mortgage banking unit posted $1.56 billion in mortgage banking net revenue for the third quarter, down from $1.87 billion one year ago.

Firmwide, mortgage origination volume fell to $29.2 billion in the third quarter, from $30.9 billion a year ago. The retail channel contributed $10.6 billion, while the correspondent channel contributed $16.3 billion in volume, compared to $11.7 billion and $15.4 billion, respectively, last year.

The 17% drop in net revenue was driven primarily by lower net servicing revenue, loan spread compression and lower product margins.

"Not to state the obvious, but mortgage banking is a cyclical business, and obviously as we see the beginning of rate normalization, you do see the beginning of declines generally speaking in volumes, and therefore competitive pressures on margins," said Chief Financial Officer Marianne Lake during a conference call with analysts.

However, Lake added, "if you go underneath the revenues, we're actually doing well relative to the market. That market estimate is to be down 15-ish percent year-over-year, and our volumes are down in the low single digits. So we're gaining share, we've been investing in our bankers, in the retail segment and the purchase market and we're making steady progress."

Despite servicing fewer loans, the value of Chase's mortgage servicing rights rose to $5.7 billion, from $4.9 billion last year.

Mortgage fees and related income also dropped to $429 million, from $629 million a year ago. Net production revenue was $158 million, down from $247 million last year. Net mortgage servicing revenue was $270 million, down from $377 million a year ago.

The value of residential mortgages and home equity loans on Chase's balance sheet averaged $238.2 billion during the quarter, up from $234.2 billion in 3Q16. The net charge-off rate was 0.02%, compared to 0.1% last year.

Loans in Chase's servicing portfolio had an unpaid principal balance of $821.6 billion at the end of the quarter, down from $863.3 billion a year ago.

Chase's provision for credit losses rose by $223 million to $1.5 billion, driven by higher net charge-offs because of card banking but was also partially offset by mortgage banking and a higher reserve build for cards.

Chase reported $674 million in net income for the quarter, up 20% from the same period last year. Its revenue was also up 6%, to $3.2 billion.

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Earnings Originations MSR Marianne Lake JPMorgan Chase