Two of the largest residential lenders reported noticeable declines in their Q3 mortgage profits.
JPMorgan Chase and Wells Fargo, two of the nation’s largest home lenders, released their third-quarter earnings report on Friday.
Hammered by higher interest rates, both banks reported a significant decline in their home lending revenues. Wells Fargo originated $21.5 billion of residential first liens in Q3 2022, a 36.1% decline from Q2 2022 and down 58.6% from Q3 2021.
“Industry mortgage rates have increased over 300 basis points since the beginning of the year and ended the quarter at the highest level since 2007, driving weekly mortgage applications as measured by the Mortgage Bankers Association to a 25-year low at quarter end,” said Mike Santomassimo Wells Fargo chief financial officer.
Santomassimo noted a 52% year-over-year decline in the bank’s residential lending revenue, “driven by lower mortgage originations and gain on sale margins as well as lower revenue from the resecuritization of loans purchased from securitization pools.”
“While the mortgage market adjusts to lower volumes, we expect it to remain challenging in the near term, and it’s possible that we have a further decline in the mortgage banking revenue in the fourth quarter when originations are seasonally slower,” he added. “We continue to remove excess capacity to align with the reduced demand and expect these adjustments will continue over the next couple of quarters.”
Meanwhile, JPMorgan experienced a 45.5% quarter-over-quarter decline in its mortgage originations, funding $15.2 billion in residential loans in Q3. Compared to the third quarter of 2021, the firm’s mortgage production was down by 67%.
“The only significant item this quarter was discretionary net investment securities losses in corporate of $959 million as a result of repositioning the portfolio by selling US treasuries and mortgages,” said Jeremy Barnum, chief financial officer of JPMorgan Chase. “Our strong results this quarter reflect the resilience of the franchise in a dynamic environment.”
JPMorgan CEO Jamie Dimon expects inflation and ongoing market volatility to deplete consumers’ savings sometime in mid-2023.
“It’s rather predictable if you look at how they’re spending and inflation,” Dimon said. “You have inflation, higher rates, higher mortgage rates, oil volatility war. So those things are out there, and that is not a crack in current numbers. It’s quite predictable. It will strain future numbers.”