Author: Perez Clark
Two of America’s largest mortgage lenders – Wells Fargo and JP Morgan Chase – issued their quarterly earning reports on Friday, reporting an income loss from their mortgage loan income programs.
Let’s examine the reasons behind what is now the lowest mortgage application rate in history and how they have come to affect these banks.
JP Morgan Chase and Wells Fargo Hit By Record Low Mortgage Applications
On Friday, Wells Fargo and JP Morgan Chase – disclosed their quarterly earning numbers, showing that both banks’ mortgage lending programs have been obstructed by record-low mortgage applications.
Mortgage demand, in turn, has been by record-high interest rates and ongoing volatility in the market.
Since last year, the value of mortgage lending has been down by 67% for JP Morgan Chase and 60% for Wells Fargo.
Both Banks Experiencing Mortgage Income Drops
JP Morgan’s Q3 2022 report shows mortgage originations in Q3 2022 reaching $15.2 Bn. Compared to Q3 2022, revenue has fallen by 67%. In contrast, the bank saw, in Q2 2022, a 45.5% fall in the value of new mortgages.
Similarly, Wells Fargo’s 3rd quarter 2022 fiscal report shows that mortgage applications are well below their previous point last year. The bank issued $21.5 Bn of residential first liens in Q3 2022, showing a 36.1% decrease from Q2 2022 and a 58.6% drop from Q3 2021, resulting in a 52% decline in the bank’s housing loan earnings.
“Industry mortgage rates have spiked by more than 300 basis points since January and closed the quarter at the highest point ever since 2007, further affecting mortgage application around the country,” said Mike Santomassimo, Chief Financial Officer, Wells Fargo.
Rising Interest Rates and Market Volatility
The most significant reason behind the low demand for new mortgages is interest rates are peaking now.
Macroeconomic factors played essential roles in keeping the mortgage interest rates low for 2022, particularly the Federal Reserve’s decision to purchase billions of dollars in bonds to better combat the pandemic pressure.
However, record high inflation in the last two quarters has pushed the Federal Reserve to change course and increase the Federal Discount Rate five times. These measures from the Fed have caused interest rates to reach 20-year peaks.
“As the mortgage market continues to adjust to lower volumes, we expect the ongoing situation to remain problematic in the near term,” Santomassimo added. “We will continue moving excess capacity to match the reducing demand.”
Even though the two banks failed to make Investopedia’s list of 2022’s Best Mortgage Lenders, their efforts to convert more mortgage customers suggest the global market’s current nature.
JP Morgan’s CEO Jamie Dimon believes that mortgage lending institutions are experiencing many global issues disrupting the market. “We’re facing oil volatility, inflation, interest rates, hiking mortgage rates, and war, so a fall in mortgage lending revenue shouldn’t be a shocker.
Conclusion
Amid the market crisis, interest rates on new mortgages close the quarter at the highest peak since 2007, driving weekly mortgage applications to a record 25-year low. However, both banks have clarified through their media outlets that their overall financial performance is still going strong.