Two of the nation’s largest mortgage lenders – JP Morgan Chase and Wells Fargo – released their quarterly earnings report on Friday.
The figures of the title? Revenue generated by both banks was hammered by record mortgage interest rates, record levels of mortgage applications and ongoing market volatility. Year after year, the value of new mortgage loans fell nearly 60% for Wells Fargo and 67% for JP Morgan Chase.
- JP Morgan Chase and Wells Fargo saw significant reductions in their residential loan revenues in the third quarter of 2022.
- These declines were driven by record-low demand for new mortgages.
- Mortgage demand, in turn, has been curbed by record interest rates and continued market volatility.
Mortgage earnings are down for both banks
Wells Fargo’s Q3 2022 earnings report indicates that mortgage applications are down sharply from last year. Wells Fargo originated $ 21.5 billion of first residential lien in the third quarter of 2022, a decrease of 36.1% from the second quarter of 2022 and 58.6% from the third quarter of 2021. This contributed to a 52% year-over-year decline in the bank’s residential loan revenues.
JP Morgan’s third quarter 2022 earnings report paints a similar gloomy picture. Mortgage creation in the third quarter of 2022 was $ 15.2 billion. Compared to the previous quarter, this is a 45.5% drop in the value of new mortgages. Compared to the same quarter last year, earnings fell further, by 67%.
While neither bank makes it into Investopedia’s roundup of top mortgage lenders in 2022, their struggle to attract new mortgage customers is indicative of the market as a whole. According to the Mortgage Bankers Association, interest rates for new mortgages ended the quarter at their highest level since 2007 and drove weekly mortgage applications to a 25-year low.
High interest rates and market volatility have hit the mortgage market
The most immediate reason for the record low demand for new mortgages is simply that interest rates are so high right now. Macroeconomic factors had kept mortgage interest rates at record lows for much of this year, particularly driven by the Federal Reserve’s purchase of billions of dollars of bonds in response to economic pressures from the pandemic. However, record inflation over the past two quarters has prompted the Fed to reverse course and raise the federal discount rate five times this year. These actions have driven mortgage interest rates to a 20-year high in the past few weeks.
However, there are other factors at play. As JPMorgan CEO Jamie Dimon noted, mortgage lenders face a number of challenges. “You have inflation, higher rates, higher mortgage rates, oil, volatility, [and] war, “he said, so a decline in residential loan revenue across the market is” fairly predictable. ”
Despite falling mortgage applications, both banks said their overall financial position remains solid.