While mortgage earnings at JP Morgan Chase were stronger than expected, the more applicable read-through for the industry would be seen at Wells Fargo, said Keefe, Bruyette & Woods analyst Bose George.

JPMorgan Chase had a 9% increase in mortgage banking income compared with the second quarter, but a 45% decrease from the third quarter of 2020.

George’s report was written before Wells reported a 1% quarter-to-quarter increase but 24% year-over-year decline in mortgage banking income.

JPMorgan Chase originated $41.6 billion in the third quarter, its most productive period this year, up 5% from the second quarter’s $39.6 billion and 43% from one year prior, when it did $29 billion.

Production revenue increased 19% over the prior quarter, to $614 million from $517 million. But compared to a year ago, when gain on sale margins were extremely high, production revenue was 20% lower than the $765 million received in the third quarter of 2020.

Gain on sales margins were 148 basis points for the third quarter, up 17% from the previous quarter. That was better than what KBW had expected, George noted, even taking into account comments made in an August KBW report, which predicted that nonbank lenders would have flat to slightly higher third quarter margins.

“We attribute the improvement to competition easing modestly in light of application volumes remaining stronger than previously expected,” George said in the JPMorgan Chase note. “The increase in profitability was also in contrast to the slight narrowing of primary/secondary spreads during the quarter.”

But JPMorgan Chase’s servicing business had a loss of $18 million in the third quarter, compared with net revenue of $31 million in the second quarter and $311 million the prior year.

That brought JPMorgan Chase’s mortgage banking income to $596 million in the third quarter, versus $548 million in the second quarter and $1.08 billion in the third quarter of 2020.

Wells Fargo had $1.06 billion of net gains on mortgage sales and $109 million of net servicing income in the third quarter for a total of $1.17 billion.

In the second quarter, total mortgage banking income of $1.16 billion consisted of $1.23 billion in net gains on sale offset by a $76 billion servicing loss. For the third quarter of 2020, $1.54 billion in mortgage banking income was made up of $1.2 billion in net gains on sale and $331 million in net servicing income.

Unlike JPMorgan Chase, Wells Fargo made fewer originations from the comparable periods. Wells Fargo originated $59.1 billion in the third quarter, compared to $53.2 billion in the second quarter and $61.6 billion one year prior.

Bank of America’s origination pattern was in line with that of JPMorgan Chase. It had total originations of $21.2 billion in quarter ($12.5 billion from consumer banking, the rest from wealth management), up from $20.3 billion in the second quarter ($11.5 billion from consumer banking) and $13.4 billion ($7.3 billion from consumer banking) in the third quarter last year.

On the other hand, Citi saw its origination volume shrink to $4.7 billion in the third quarter, down from $5.6 billion in the second quarter and $6.6 billion one year prior.

But Citi’s mortgage banking income rose on a quarter-to-quarter basis, to $25.8 million from $19.3 million. However, in the third quarter of 2020, Citi reported mortgage banking income of $59.1 million.

U.S. Bancorp had third quarter mortgage banking income of $418 million, up from $346 million in the second quarter but down from $553 million year-over-year.

The quarter-to-quarter change was “driven by higher production volume and related gain on sale margins as well as higher loan sales, partially offset by a slightly unfavorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities,” a press release said.

It originated $28.4 billion in the third quarter, up from $23.7 billion in the second quarter and $25.7 billion in the third quarter 2020.





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