Mortgage loan production volume at three of the nation's largest banks came in above expectations for the second quarter, which a pair of nonbank analysts believe is a positive for the segment.
JPMorgan Chase reported origination volume of $17.2 billion for the quarter, compared with $13.7 billion
For Wells Fargo, total volume of $9 billion was 43% over the first quarter's $6.3 billion and 22% above $7.4 billion
Bank of America's consumer banking division produced $3.5 billion of first mortgages and $2.4 billion in home equity products during the second quarter. This compared with $3.07 billion of first mortgages plus $2 billion of home equity in the prior quarter along with $3.05 billion and $2.2 billion respectively one year ago.
What industry analysts take away from the bank results
For all three combined, the gain was in the 30% range, reports from BTIG and Keefe, Bruyette & Woods noted.
The Mortgage Bankers Association's June forecast called for 3% industrywide quarter-to-quarter gain for total volume of $567 billion. Fannie Mae is more bullish in its June forecast, with expected volume of $594 billion, a near 9% increase from the first quarter.
"We view the strong volume performance by the banks as a positive sign for the more production-focused nonbanks in our coverage," wrote BTIG analyst Doug Harter in a note after the three earnings were released. "Top pick Rithm Capital and United Wholesale remain our preferred names for the sector."
The combined volume gain also exceeds an 11% increase in mortgage-backed securities issuance for the quarter, he said.
In
"Net/net, we'd characterize the quarter as positive for volume, although it remains unclear if this reflects industry volume or if banks are taking share from nonbanks," Bose George of KBW wrote in his read through of the earnings data.
JP Morgan Chase's gain-on-sale margin
Only Chase provides gain-on-sale information, and it reported an 85 basis point margin for the quarter. It was approximately 45 basis points lower versus three months prior.
"This compares to our expectation of a 4 basis point increase in GOS margins for our coverage in the quarter," Harter commented. "We would note that bank GOS margins have historically been much more volatile on a quarterly basis than our nonbank coverage, which limits the near-term comparability between the two."
George feels Chase's GOS was worse than expected, given it was a seasonally strong quarter for volume, albeit dealing with
"However, GOS margins could have been impacted by pipeline hedge losses or other one-time items," he noted. "We are modeling fairly flat gain-on-sale margins by channel for the nonbank mortgage originators."
MSR valuation changes at the three banks
Both BTIG and KBW calculated these three banks' mortgage servicing rights valuations rose just 1 basis point, which brought it to 1.4%, the latter said.
"The companies do not disclose the average servicing fee, and we assume that it remains roughly unchanged (a change in the average servicing fee could impact this valuation)," George said. "We are expecting MSR values to be up modestly on the increase in mortgage rates in the quarter."
Similarly, for the company's BTIG covers, Harter is forecasting a low single digit increase in MSR values for the period.
Mortgage earnings at JPMorgan Chase and Wells Fargo
In the second quarter, Chase reported mortgage fees and related income of $325 million, made up of $147 million of production revenue and $178 million of net servicing revenue.
This was up from $303 million in the first quarter ($178 million origination and $125 million net servicing), but down from one year ago, when this line item was $347 million ($151 million origination and $196 million net servicing).
Mortgage banking noninterest income in Wells Fargo's consumer banking business was $154 million, down from $163 million one quarter prior and $169 million one year prior.
Home lending revenue of $762 million for the second quarter compared with $787 million in the first quarter and $821 million a year ago.
Bank of America does not break out this information.
