When long-term interest rates ticked up late last year, it was widely believed that mortgage revenues would modestly decline in the first quarter. Revenues did fall, but the drop-off was more extreme than most community banks expected.
In a quarter where most results were consistent with expectations, the precipitous decline from a quarter earlier shocked many analysts and executives and left them wondering how to fill the hole.
"It's like the faucet was just turned off," said Daniel Cardenas, an analyst at Raymond James. "It was something that all banks, at least the ones I look at, experienced this quarter. Absent a rate reduction, it will be tough to see that number pop up again."
Mark Hoppe, the chief executive of Taylor Capital Group Inc. in Chicago, was among those shocked when the final tallies came in. Taylor broke from tradition in January to warn that mortgage revenue would be down. Little did executives know that the company would experience a 73% drop in revenue from mortgage originations in just three months.
"It fell way, way more than we or anybody else anticipated," Hoppe said. Taylor was not the only bank hit by sharper-than-expected declines. Several companies used the words "dramatic" and "significant" in discussing them.
Though higher interest rates took the most blame, several bankers flagged other possible culprits. Some said the compensation rules for mortgage brokers under the Dodd-Frank Act have weakened the motivation for wholesale lenders.
Also the first quarter typically is shorter than other quarters, and some parts of the country endured a rough winter, they said.
