Wells, Chase mortgage results stifled by lagging activity

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Wells Fargo and JPMorgan Chase had reduced mortgage-related earnings in the fourth quarter as home loan activity continues to fall short of expectations.

Notably, both banks made cuts to their home lending units throughout last year, which were signs that mortgage revenue and activity were in hot water.

Wells Fargo residential mortgage loan originations fell by $15 billion to $38 billion year-over year in the fourth quarter. Originations also dropped on a quarterly basis by $8 billion. Mortgage origination volume for Chase was $17.2 billion, down from $22.5 billion in third quarter and $24.4 billion for the fourth quarter of 2017. Full-year originations were down 19%, to $79.4 billion from $97.6 billion.

At Wells, 78% of mortgage originations were for purchase loans in the fourth quarter, highlighting shifts in the market as this share was just 64% a year ago.

In October, Chase announced it was cutting 400 mortgage banking positions because of lower-than-expected demand this year. Wells also eliminated 1,000 roles in November, 900 of which included mortgage lending positions. The bank plans to cut up to 26,000 more jobs in the next three years.

Wells' mortgage banking noninterest income tanked to $467 million in the fourth quarter, down from $928 million from a year ago and $867 million in the previous quarter. Its mortgage servicing income also fell to $109 million, down from $262 million year-over-year and from $390 million quarter-over-quarter.

Chase reported a $28 million loss on its fourth-quarter mortgage originations, compared with net revenue of $108 million in the third quarter and $185 million one year prior. Production income was 58% lower in 2018 than for 2017, $268 million compared with $636 million.

However, mortgage servicing fee income at Chase increased to $231 million for the fourth quarter, from $152 million in the third quarter and $193 million in the fourth quarter of 2017. But for the full year it was up only 1%, $984 million versus $977 million in 2017.

Chase's home lending revenue was flat compared with the third quarter, $1.32 billion versus $1.31 billion, but down 8% from $1.44 billion in the fourth quarter of 2017. The home lending line includes both mortgage and home equity.

Home equity originations at Wells did shoot up 14% year-over-year to $673 million, which is not surprising considering property values keep appreciating and homeowners continue staying put.

Wells' correspondent channel accounted for 55% of total originations and produced lower production margins than retail originations. A year ago, its correspondent channel represented 57% and 59% of originations, respectively, on an annual and quarterly basis.

For Chase, the fourth quarter had $9 billion of retail originations and $8.2 billion purchased through the correspondent channel. In the third quarter, the correspondent channel had $11.9 billion and retail originated $10.6 billion. Last year's correspondent production was down 28% from the year prior to $41.1 billion, but retail was only down 5% to $38.3 billion.

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Earnings Stocks Originations Purchase MSR Secondary market Servicing Correspondent JPMorgan Chase Wells Fargo