U.S. Mortgage Origination Volumes Finally Grow In Q2

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The slowdown in the mortgage industry across the country over recent years is no secret, with some of the country’s biggest banks reporting a sizable decline in top-line figures since late 2012 owing to lower mortgage revenues. The impact of this can be seen more clearly among banks which bulked up their mortgage banking business after the economic downturn of 2008 – Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) – compared to those which were forced to slash their mortgage operations in the wake of the recession, such as Bank of America (NYSE:BAC) and Citigroup (NYSE:C). While the mortgage refinancing wave resulted in unprecedented levels of activity in the industry in 2011-2012,  uncertainty over interest rates due to the Fed’s tapering plan has kept the demand for fresh mortgages depressed over recent quarters – forcing the banks to work through their mortgage application pipeline.

However, there was a notable improvement in mortgage activity in Q2 2014, with data compiled by the Mortgage Bankers Association (MBA) estimating that $267 billion in mortgages were originated over the period compared to $226 billion in Q1 2014 – an 18% improvement. ((Quarterly Origination Estimates, Mortgage Bankers Association)) In fact, this growth comes after four consecutive quarters of heavy declines in origination volumes. In this article, we highlight the changes in mortgage origination volumes for each of the country’s five largest commercial banks over the last two years and also what to expect from each of them over the coming years.

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The mortgage industry has been extremely volatile since early 2005 – with a boom over 2005-2007 being followed by the crash that contributed to the economic downturn. As the economy recovered from recession, record-low interest rates and government-led incentives gave a boost to the industry in 2011-2012, when homeowners rushed to get their mortgages refinanced to benefit from the improved interest environment and lending terms. Refinancing activity dried up soon, though, and without much improvement in the demand for fresh mortgages, Q1 2014 saw the lowest mortgage origination volumes since Q3 1997. Data compiled by the Mortgage Bankers Association (MBA) shows that U.S. mortgage origination volumes jumped from a low of $246 billion in Q1 2011 to $597 billion in Q4 2012 before diving to $226 billion in Q1 2014. A notable increase in fresh mortgage originations ($158 billion in Q2 2014 compared to $115 billion in Q1 2014) helped total originations climb to $267 billion in Q2 2014. [1]

The table below summarizes the volume of mortgages originated by each of the country’s five biggest banks in each quarter over the last ten quarters. The data has been compiled using figures reported by individual banks as a part of their quarterly announcements. Total market figures are taken from MBA’s historical mortgage origination data. It should be noted that all the banks include refinanced mortgages in addition to fresh mortgages as a part of their total origination figure for a period.

(in $ billions) Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Q3’13 Q4’13 Q1’14 Q2’14
Wells Fargo 129.0 131.0 139.0 125.0 109.0 112.0 80.0 50.0 36.0 47.0
JPMorgan 38.4 43.9 47.3 51.2 52.7 49.0 40.5 23.3 17.0 16.8
Bank of America 16.0 18.9 21.2 22.5 25.0 26.8 24.4 13.5 10.8 13.7
U.S. Bancorp 19.2 21.7 21.5 22.1 21.7 17.8 15.2 8.6 6.2 8.0
Citigroup 14.3 12.9 14.5 16.8 18.0 17.2 14.5 8.3 5.2 6.2
Top 5 Total 216.9 228.4 243.6 237.6 226.4 222.8 174.6 103.7 75.3 91.7
Total Market 436.0 431.0 550.0 597.0 524.0 537.0 401.0 293.0 226.0 267.0

The data shows that Wells Fargo is the undisputed leader when it comes to mortgage originations, with the bank having originated more home loans than its four closest competitors combined in seven of the last 11 quarters. In fact, comparing these figures with the total market size data compiled by the Mortgage Bankers Association shows that in early 2012 Wells Fargo was responsible for originating one in every three mortgages in the U.S. Its market share has shrunk over the years, though, to settle at just below 16% for Q1 2014. The figure improved slightly to almost 18% in Q2 2014.

Notably, the market share of these five banks put together has fallen considerably since mid-2012 – shrinking from 53% in Q2 2012 to 34% in Q2 2014. This indicates that they gained in 2011-2012 primarily because people with existing mortgages refinanced their loans under the government’s HAMP initiative with large banks instead of smaller lenders or credit unions. After all, refinances were responsible for nearly three-fourths of all mortgages originated between Q4 2011 and Q1 2013.

With a mortgage banking division that remained largely unchanged even after the recession, JPMorgan comes in at a rather distant second. The bank has a strong presence in the industry, though, and has leveraged its country-wide branch network to maintain its market share over the years and we expect it to continue to do so in the future. It must be noted here that JPMorgan was the only bank among the five detailed here to report a reduction in mortgage originations in Q2 compared to Q1.

As for the country’s largest regional bank, U.S. Bancorp, things have slowed down faster than its peers because of its focus on specific geographies. This allowed Bank of America to regain the third spot in this list in Q2 2012 – a position it has consolidated over recent quarters by improving its market share. While Bank of America is now focused on growing its mortgage business, it had to slash it considerably after the downturn and gave away its position as the country’s top mortgage originator in the process. But if the bank manages to repeat the sharp growth it reported in Q2 2014 over coming quarters, then it could easily displace JPMorgan from the second position in the near future.

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Notes:
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