U.S. Banking Review: Mortgage Origination Comparisons

by Trefis Team
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The mortgage industry saw one of the largest upheaval in modern history in 2008 when the U.S. housing bubble fueled by rampant sub-prime lending practices by mortgage originators and obscure securitization practices by global financial giants burst and send shock waves through the global economy.

It has taken all of the last five years for the industry to crawl back to health with home prices across the U.S. beginning to recover only in mid-2012. And there is simply no contesting the fact that it is the mortgage industry that has single-handedly redrawn the country’s banking sector – with the largest U.S. banks shaping their new business models around the condition of their mortgage banking business.

While banks like Bank of America (NYSE:BAC) and Citigroup (NYSE:C) have reduced their mortgage business to a shadow of their former selves, others like Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) have stepped in to take their place as the country’s largest mortgage-focused banks. The only banking giant that more-or-less maintained its business through the years is JPMorgan Chase (NYSE:JPM) – choosing neither to substantially slash or bulk-up its mortgage operations.

In this article, which is a part of our continuing series on the comparison of the countries biggest banking groups based on their strength and weaknesses in the numerous activities they engage in, we focus on the mortgage origination business at these banks.

See the full Trefis analysis for Wells FargoJPMorganU.S. BancorpBank of AmericaCitigroup

Mortgage origination is the first and most basic activity in the mortgage banking business and simply refers to the process of handing out mortgages to borrowers after evaluating their ability to repay the borrowed amount.  Besides fresh mortgages, banks also include refinanced mortgage loans – mortgages that have been modified or transferred from one bank to another – as a part of their total origination figure for the period.

The table below summarizes the volume of mortgages each of the country’s 5 biggest banks originated each quarter over the last two years. The data has been compiled using figures reported by individual banks as a part of their quarterly announcements.

(in $ millions) Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 FY’11 FY’12
Wells Fargo 84,000 64,000 89,000 120,000 129,000 131,000 139,000 125,000 357,000 524,000
JPMorgan 36,200 34,000 36,800 38,600 38,400 43,900 47,300 51,200 145,600 180,800
U.S. Bancorp 12,131 8,070 11,509 17,415 19,168 21,667 21,529 22,111 49,125 84,475
Bank of America 58,462 41,424 33,885 22,373 15,998 18,935 21,248 22,478 156,144 78,659
Citigroup 14,100 11,000 17,000 21,100 14,300 12,900 14,500 16,800 63,200 58,500

Not surprisingly, Wells Fargo leads the pack when it comes to mortgage originations with the country’s fourth largest bank in terms of assets boasting of originating more home loans than all its four closest competitors combined. Wells Fargo has been responsible for originating one in every three mortgages over recent quarters. JPMorgan comes at a distant second, followed by the regional banking group U.S. Bancorp which has been focusing heavily on the mortgage market in recent years. The bank grabbed most of the market share given up by the banking giants Bank of America and Citigroup who have been plagued by mortgage-related charges since the economic downturn and had almost completely halted adding new mortgages till a few quarters ago.

It must be noted here that a bulk of the originations witnessed over the last two years were a consequence of the low-interest rates that are prevalent giving home owners a good reason to refinance their existing mortgages. So the origination figures for the banks (especially Wells Fargo) may see a small decline in the near future. However, as the demand for mortgages picks up going forward, banks should find themselves originating more home loans in the long run.

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