Market observers were already predicting that 2017 would be a rough year for mortgages, at least compared to 2016.
So it shouldn’t have come as a surprise that when Wells Fargo, Citigroup, and JPMorgan Chase reported their financial results for the first half of the year mortgages were not a significant driver of revenue.
But a deeper dive into the big banks’ results shows that while mortgages are still ingrained into the futures of Wells Fargo and Chase, Citi continues to move further and further way from mortgages.
Friday’s results also provide added confirmation that 2017 will not be kind to mortgages, for the big banks at least.
Wells Fargo reported Friday that its mortgage banking noninterest income fell to $1.15 billion in the second quarter of 2017, down 19% from last year’s $1.41 billion.
In the first quarter, Wells Fargo’s mortgage banking income fell to $1.23 billion.
Overall, Wells Fargo’s total mortgage banking income is down in 2017 compared to the same time period last year. Wells Fargo’s mortgage banking income checked in at $2.376 billion for the first half of 2017, compared to $3.012 billion in first half 2016.
That’s a drop of 21%.
The bank’s servicing noninterest income was actually up in the second quarter, climbing to $400 million in Q2 2017 from $360 million in Q2 2016, an 11% increase.
But that barely made up for the first quarter, as for the year, Wells Fargo’s servicing income is $856 million, compared to $1.21 billion in 2016 — a decrease of 29%.
The bank’s net gains on mortgage loan origination and sales activities were also down, falling to $748 million in Q2 2017 from $1.054 billion in Q2 2016, which is also a decrease of 29%.
For the year, the bank’s net gains on mortgage loan origination and sales activities are down from $1.802 billion in first half 2016 to $1.52 billion in first half 2017, a decline of 16%.
But Wells Fargo’s mortgage pipeline still appears to be relatively strong.
The bank pulled in $83 billion in mortgage applications in Q2 2017, compared to $59 billion in Q1 2017, $75 billion in Q4 2016, $100 billion in Q3 2016, and $95 billion in Q2 2016.
Wells Fargo’s total originations were down too, year-over-year, but not by a significant margin.
In the second quarter of 2017, Wells Fargo had $56 billion in originations, compared to $44 billion in Q1 2017, $72 billion in Q4 2016, $70 billion in Q3 2016, and $63 billion in Q2 2016.
Interestingly, it appears that Wells Fargo’s customer are trending much more toward purchase mortgages as interest rates fluctuate.
Over the last few quarters, Wells Fargo’s originations broke down this way:
Purchases as a percentage of originations:
- 75% Q2 2017
- 61% Q1 2017
- 50% Q4 2016
- 58% Q3 2016
- 60% Q2 2016
Refinances as a percentage of originations:
- 25% Q2 2017
- 39% Q1 2017
- 50% Q4 2016
- 42% Q3 2016
- 40% Q2 2016
As shown in the stats, there’s been a 25% swing toward purchases in just the last two quarters.
But Wells Fargo’s mortgage business is still down, and appears to be tracking to stay down for the rest of year.
The news is much the same at Chase, where the bank’s mortgage banking revenue is down and has been trending down for several quarters.
Chase’s mortgage banking revenue checked in at $1.426 billion in the second quarter, compared to $1.529 billion in Q1 2017, $1.69 billion in Q4 2016, $1.874 billion in Q3 2016, and $1.921 billion in Q2 2016.
The bank’s mortgage fees and related income (which is based on net production revenue and net mortgage servicing revenue) is also trending down.
Here’s the bank’s net production revenue over the last several quarters:
- Q2 2017 – $152 million
- Q1 2017 – $141 million
- Q4 2016 – $183 million
- Q3 2016 – $247 million
- Q2 2016 – $261 million
And the bank’s net mortgage servicing revenue:
- Q2 2017 – $249 million
- Q1 2017 – $265 million
- Q4 2016 – $327 million
- Q3 2016 – $377 million
- Q2 2016 – $428 million
Overall, the bank’s mortgage fees and related income fell to $401 million in Q2 2017, down from $406 million in Q1 2017, $510 million in Q4 2016, $624 million in Q3 2016, and $689 million in Q2 2016.
In the bank’s earnings release, it stated that mortgage banking net revenue was down because of higher rates resulting in higher funding costs, lower MSR risk management revenue, and lower production margins.
Chase’s originations were actually up slightly from the first quarter but still down year over year.
Here’s the breakdown:
- Q2 2017 – $23.9 billion
- Q1 2017 – $22.4 billion
- Q4 2016 – $29.1 billion
- Q3 2016 – $27.1 billion
- Q2 2016 – $25 billion
For Citi, the news is that the bank appears to be moving further away from mortgages.
The bank already announced its exit from mortgage servicing, and its originations were down significantly in the second quarter.
In fact, Citi’s mortgage originations have fallen for three straight quarters.
In Q2 2016, Citi’s originations checked in at $6.4 billion. Originations ticked up slightly in Q3 2016 to $6.5 billion, but then the decline began.
In Q4 2016, Citi’s originations fell to $5.6 billion. Then in the first quarter of this year, Citi’s originations dropped to $3.8 billion.
And in the second quarter of 2017, Citi’s originations fell again to $3.1 billion.
Now, $1 billion in originations every month is nothing to sneeze at, but it is down more than 50% from the same time period last year.
So, originations are down and the bank’s servicing portfolio is shrinking – not exactly a recipe for continued mortgage success.
We’ll get more of a look at the mortgage performance of some of the other big guns in the business over the next several weeks, but odds are that there won’t be a lot of money made in mortgages in 2017, at least compared to last year.