Mortgage businesses at Wells Fargo, JPMorgan Chase and Bank of America are now only a fraction of what they were in 2022. As a group, the trio originated about $80 billion in mortgages in 2023, down from nearly $218 billion the prior year – a $138 billion decline (63%). 

The downsized volume reflects two equally important factors: a housing market characterized by limited inventory, high mortgage rates and reduced demand, but also the banks taking themselves off the board for some residential mortgages.

On Friday, the big banks opened the 2023 earnings season for mortgage lenders, giving analysts something to chew on before nonbanks – including Rocket Mortgage, United Wholesale Mortgage, Pennymac, Rithm Capital and Mr. Cooper – report their earnings in the coming weeks. 

Wells Fargo, for example, shrunk its mortgage business dramatically in 2023, per filings with the Securities and Exchange Commission (SEC). The data shows that the bank produced $25.3 billion in home loans, representing only 23% of the $108 billion volume in the previous year, when it was still the kingfish in correspondent lending. 

In January 2023, Wells Fargo announced the decision to exit the correspondent business, and originations through the channel declined to $1.1 billion for the year from $44 billion in 2022. But the retail channel also declined – to $24 billion in 2023 from $64 billion the previous year – due in large part to higher rates. 

Wells Fargo’s CEO Charlie Scharf said in a statement that the company started last year to see improvements in parts of the business that executives believe will drive higher returns over time, for example, credit card products, corporate banking, and investment banking. 

Regarding the mortgage business, Scharf added that “continued execution of our more focused home lending strategy should also produce higher returns and earnings over the next several years.” 

But not yet. Earnings in the mortgage business are declining year over year at Wells Fargo. The noninterest income with mortgages came in at $829 billion in 2023, compared to $1.3 billion in 2022, a 40% decline. Home lending revenues declined to $3.3 billion from $4.2 billion in the same period.

Amid the contraction at Wells Fargo, JPMorgan became bigger than its rival in the mortgage space. One push was made by acquiring the jumbo leader First Republic Bank after federal regulators seized it. 

JPMorgan’s total production was $35 billion in 2023 – 38% higher than Wells Fargo’s origination volume. But JPMorgan Chase declined 46% from $65 billion in 2022. Originations through the correspondent channel fell 53% year over year at JPMorgan to $12.7 billion in 2023. Meanwhile, volumes declined 42% year over year in the retail branches to $22.4 billion. 

In 2023, the bank’s net revenues with home lending came in at $4.1 billion, up 13% compared to the previous year. 

Meanwhile, smaller competitor BofA delivered a $19.4 billion production in residential mortgages in 2023, compared to $44.7 billion the previous year, a 56% decline. The business grew to $9.8 billion in the home equity space from $9.6 billion in the same period. 

Bank of America’s total mortgage-backed securities reached a $51.2 billion fair value as of Dec. 30, compared to $29.3 billion as of Sept. 30, 2023.  

How was the last quarter of the year?

At Wells Fargo, mortgage originations reached $4.5 billion from October to December, down 30% quarter over quarter and 70% year over year. 

As the bank completed its exit from the correspondent channel in Q3, all the volume in the fourth quarter came from its branches, mainly focused on purchase loans. Ultimately, refinancing comprised 24% of the volume in Q4, compared to 16% in the previous quarter. 

In financial terms, the revenue related to the home lending business remained flat compared to the previous quarter at about $840 million in Q4. Compared to the same quarter in 2022, when revenue was $786 million, it increased 7%. However, mortgage banking noninterest income at Wells came in at $202 million in Q4 2023, a decrease from $193 million in the previous quarter and a substantial increase from $79 million in the same period of 2022.

Meanwhile, at JPMorgan, origination volume totaled $7.2 billion in Q4, including $410 million from First Republic Bank, which was focused almost entirely on jumbo loans. 

Including First Republic Bank’s production, JPMorgan’s mortgage volume declined by 35% compared to Q3 2023. Still, it increased by 7% compared to the same period the previous year (when First Republic was not part of JP’s operations).  

Through its correspondent channel, origination volume reached $2.5 billion in Q4, a decline of 40% quarter over quarter. Retail volume reached $4.7 billion, down 31% in the same period. 

JPMorgan’s home lending net revenue reached $1.16 billion in Q4, down 7% from the prior quarter and up 99% year over year – excluding the acquisition of First Republic, the increase year over year is 39%.  

According to the bank, the performance was “driven by higher servicing revenue, largely due to the absence of a net MSR loss in the current quarter compared with the prior year, as well as higher net interest income.” 

BofA’s mortgage originations totaled $3.9 billion during the fourth quarter of 2023, a 30% decline from $5.6 billion posted in the third quarter and a 25% drop from the $5.2 billion originated in the fourth quarter of 2022. 

BofA also originated $2.25 billion in home equity loans in the fourth quarter, which was lower than the $2.42 billion volume in the previous quarter and $2.6 billion in the same period last year. 

The servicing side of the business 

On the servicing side, Wells Fargo’s mortgage servicing rights – carrying value (period-end)­ – declined by 12%, to $7.5 billion in Q4 from $8.5 billion in Q3. Compared to Q4 2022, servicing UPB decreased by 20%. 

The bank’s net servicing income came in at $113 million from October to December, compared to $41 million in the previous quarter and $94 million in the same period of 2022. In 2023, however, it declined 18% to $300 million. 

JPMorgan’s mortgage servicing rights increased to $8.5 billion in Q4 2023, down from $9.1 billion in Q3 2023 but up from $7.9 billion in Q4 2022. 

Mortgage servicing revenues at JPMorgan declined to $179 million in Q4 2023 from $255 million in Q3 2023. In Q4 2022, such revenues came in at $47 million. In 2023, net mortgage servicing revenues totaled $754 million, up 2% year over year. 

What to expect in the coming quarters

Overall, Wells Fargo delivered a $3.4 billion profit in Q4 2023, compared to $3.1 billion in the same quarter of 2022. Overall revenues came in at $20.5 billion from October to December, up from $20 billion in the same period last year. 

Regarding the macroeconomic landscape, Scharf said in a statement that the bank is “closely monitoring credit, and while we see modest deterioration, it remains consistent with our expectations.” 

“Our capital position remains strong, and returning excess capital to shareholders remains a priority,” Scharf said. 

At JPMorgan, net income came in at $9.3 billion in the fourth quarter (including First Republic operations), lower than the $13 billion in the previous quarter and the $11 billion in the same quarter of 2022. The bank said that excluding the FDIC special assessment and discretionary securities losses, net income would be $12.1 billion. 

Jamie Dimon, the bank’s chairman and CEO, said 2023 was a “good example” of the power of the bank’s investment philosophy and fortress principles. But there are challenges ahead. 

According to Dimon, despite a resilient U.S. economy and an expected soft landing by the markets, increasing government spending – due to past stimulus, the need to invest in the green economy and higher military spending, among others – may lead inflation to be stickier and rates to be higher than markets expect.   

On the regulatory front, specifically Basel III endgame, Dimon believes it “could cause serious harm to consumers, businesses, and markets” and hopes “regulators will make the necessary adjustments.” 

At Bank of America, net income came in at $3.1 billion in Q4, compared to $7.8 billion in Q3 and $7.1 billion in Q4 2022. 

Chair and CEO Brian Moynihan said it was a “solid” performance. “All our businesses achieved strong organic growth, with record client activity and digital engagement,” Moynihan said in a statement. 

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