While second quarter
"The volume growth was better than expected, but this was offset by the decline in GOS margins despite 2Q typically being a seasonally strong quarter," wrote Bose George in a flash note from KBW. "We are expecting 2Q GOS margins to be fairly flat [quarter-to-quarter] for the non-bank mortgage originators."
The immediate impact of these results on publicly traded nonbank mortgage lenders should be muted.
"While we're not expecting much reaction from nonbank originator shares, we also do not see much upside into earnings as valuations have also reached near-term highs," George said.
Meanwhile
Those compared with the Mortgage Bankers Association's forecast of a 14% gain between the periods, while
All three banks reported lower volume on a year-over-year basis. Chase was down 4% at $11.3 billion in the second quarter of 2023 and Wells 31% lower at $7.7 billion. Citi's volume for that period was $4.5 billion.
The June MBA forecast also called for a 7% drop in industry production in the second quarter versus the same period a year ago.
The decline in originations is "reflecting our focus on simplifying the lending business as well as the decline in the mortgage market," Michael Santomassimo, Wells Fargo's senior executive vice president and chief financial officer, said on the earnings call.
"Since we announced our new strategy at the start of 2023, we have reduced headcount in home lending by approximately 45%," he continued.
When it comes to the gain on sale, Chase's margins declined 50 basis points from the first quarter to 147 basis points, George said. Compared with the year ago period, they were 15 basis points higher.
At Wells Fargo, the margin decreased 205 basis points quarter-to-quarter and 3 basis points year-over-year to 87 basis points.
Citi does not report mortgage financial data.
Chase's mortgage fees and related income total $346 million in the second quarter, with $157 million coming from originations and $189 million in net mortgage servicing revenue.
This was up 26% from both the first quarter and the second quarter of 2023, with $274 million in mortgage fees and related income.
Home lending net revenue of $1.3 billion was 31% higher year-over-year, based on higher net interest income and that included
Wells Fargo's mortgage banking income of $136 million was down 30% from the first quarter at $194 million but up 2% compared to the year-ago period's $132 million.
The second quarter included $89 million of net servicing income and $46 million of net gains on mortgage loan originations. The origination income was 55% lower versus three months prior and down 34% from the previous year.
On the servicing side, Wells Fargo's mortgage servicing rights valuation increased by 0.7% to 1.38%, George said. At Chase, the MSR carrying value rose by 0.2% to 1.38%, according to KBW's calculations.
"These MSR valuation increases were largely in line with expectations given the slight increase in rates during the quarter," George wrote.
The banks' consumer credit has not reached a crisis point, while loan quality normalization continues, a comment from Moody's Investors Service said.
"Higher-for-longer interest rates, persistently high housing prices, softening used vehicle values, and signs of a cooling labor market merit focused scrutiny from the banking sector," said Chris Stanley, banking industry practice lead. "These dynamics suggest a landscape where additional trouble could materialize, emphasizing the importance of active monitoring and multi-scenario analysis of consumer portfolios."
