New York: earnings reports from two major banks Friday painted a picture of a healing housing market, with more Americans taking out mortgages, pay them on time and take advantage of low interest rates to refinance.
At JPMorgan Chase, the largest bank in the U.S., set the revenue from new mortgages a record from January to March. The bank issued 6 percent more mortgages than one year ago and got 33 percent more applications.
Wells Fargo, which issues the most home loans, reserved the best mortgage fees since 2009. It issued 54 percent more mortgages than one year ago and took 84 percent more applications.
A healthy housing market is welcome news. Housing has been the biggest obstacle to economic recovery, while other segments such as production and consumption have kept up or increased.
Home prices still falling, but slower than in the past several years, and more than half a million American homes were in foreclosure process in late March, after RealtyTrac.
Yet stronger mortgage business helped JPMorgan and Wells Fargo beat Wall Street expectations for first quarter earnings. JPMorgan CEO Jamie Dimon boasted that the bank had 200,000 mortgages originated during the quarter.
Important factors helped:
The average interest rate on 30-year fixed mortgage fell to 3.87 percent in February, its lowest since long-term mortgages began in the 1950s. Prices have remained low: This week's average 3.88 percent.
Wells Fargo CEO John Stumpf said the housing market is near a "tipping point" where it can take.
"When you have the dynamics of higher rents and lower home values at great financing rates, a time when the market comes to clean, and you will see an improvement," Stumpf said.
Some markets, he said, like Texas, the Northern California and Washington, DC, have already reached that point.
Job growth in January and February were some of the strongest since the Great Recession and unemployment has fallen to 8.2 percent, its lowest since January 2009.
At Wells Fargo was 15 percent of mortgage applications from the government's Home Affordable refinance program that helps Americans who owe more than their property is worth getting more affordable loans.
"It's nice to see people who have made their payments every month even if they are under water, or water is enormous," Stumpf said. "And now that could help them to put a few hundred dollars extra in your pocket every month, it's great."
Foreclosures are still holding back the housing market. A $ 25 billion settlement reached in February between the country's largest lenders and state officials have paved the way for banks to take action on unpaid mortgages, many of whom have been in a procedural limbo for months or years.
These homes can be foreclosed on and end up back on the market. Foreclosures typically sell at a discount to other homes and can drag down the value of neighboring properties.
Banks agree to review their mortgage practices. Because of this commitment and more disciplined internal rules, banks do not earn as much money as they once did on the mortgage.
At a time when low interest rates has reduced revenue for the banks, the banks must also assign a banker every homeowner undergoing a loan modification and make sure each loan have double checked documentation.
At JPMorgan, increased cost of mortgage production 35 percent in the quarter to $ 573 million. At Wells Fargo, increased total noninterest expenses slightly over the previous year, primarily from commissions and bonuses for bankers in the mortgage unit and elsewhere.
Both Wells Fargo and JPMorgan also put more money to pay investors who claim they were misled about mortgage-backed securities that the bank sold them before the financial crisis in autumn 2008.
Dimon said JPMorgan expects the high cost of the bursting of property bubble last decade "for a while longer." The Bank allocated U.S. $ 2.5 billion to fight legal battles, including against foreclosures. Its chief financial officer said the bank has enough reserves for mortgage-related lawsuits. Wells Fargo added USD 314 million to its legal reserves.
Despite the increased costs, any growth welcome at a time when other loans are growing at an even slower pace, said Christopher Mutascio, an analyst with brokerage Stifel Nicolaus.
In a conference call with Wells Fargo executives, bad bank analyst Nancy Bush of mortgage modifications - slashing rates, forgiving principal - would give borrowers an excuse for not meeting their mortgage payments.
Stumpf said the "majority" of Americans want to pay their bills "if they have income to do it." Loans today, Stumpf said, are more like those made a decade ago, with full documentation and substantial down payments.
JPMorgan Chase, the largest U.S. bank by assets, turned a U.S. $ 5.4 billion profit for the quarter, down 3 percent from last year, but before Wall Street estimates. Wells Fargo made $ 4 billion, up from USD 3.6 billion years ago.
Large banks serve as a barometer for the economy. Citigroup, Bank of America, Goldman Sachs and Morgan Stanley report their results for the first quarter of next week.
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Saturday, April 14, 2012
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