Chase, Wells record origination gains, surprising drop in MSR values

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Origination volumes continued to drift upward at JPMorgan Chase and Wells Fargo in the third quarter as mortgage servicing rights values fell more sharply than some analysts expected.

"Mortgage banking results came in fairly mixed at both JPM and WFC," Keefe, Bruyette & Woods analysts Bose George, Thomas McJoynt-Griffith and Eric Hagen said in a report.

The analysts called the two companies' origination gains "roughly in line" with industry forecasts and averages.

But "on the servicing side, the negative MSR marks were larger than expected."

The analysts anticipated a 5% consecutive-quarter drop in mortgage servicing rights values, but instead valuations dropped 7% at Wells and 15% at Chase.

Home lending, in contrast, was up 26% year-over-year and 9% on a consecutive-quarter basis at Wells Fargo, and 44% and 32%, respectively, at JPMorgan Chase.

Wells Fargo's gain-on-sale was up 23 basis points quarter-to-quarter at 121 basis points, while JPMorgan Chase's estimated gain-on-sale margin during the same period was down 24 basis points at 120 basis points.

The difference was likely due to a disparity in reporting methodologies at the two companies.

"Because WFC books GOS income when the loan is sold (versus the time of rate lock, which is the common method for most lenders), the narrowing of primary/secondary spreads toward quarter-end is unlikely to be reflected in WFC's numbers," the analysts noted.

Overall, Wells Fargo's net income was down 23% year-over-year and 26% on a consecutive-quarter basis; and JPMorgan Chase net income was up 8% year-to-year and down 6% quarter-to-quarter.

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Earnings Stocks Originations MSR Secondary market Wells Fargo JPMorgan Chase