U.S. Bancorp Is The Only Major U.S. Bank Still Reporting Growth In Mortgage Servicing Portfolio

by Trefis Team
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The trend of a sequential decline in the total mortgage servicing portfolio for the five largest U.S. banks continued in the first quarter of 2018, as a notable reduction in third-party mortgage servicing portfolio mitigated small gains from fresh mortgage originations for the period. The decline has been seen across most U.S. banks since 2012, and is a result of the increased capital requirements that banks’ mortgage servicing rights attract in the wake of the economic downturn of 2008.

U.S. Bancorp has bucked this trend over the years, though, as its traditional loans-and-deposits business model, its risk-averse growth strategy and its lower capital requirements compared to its larger peers have helped it build a sizable capital buffer. With the regional banking giant focusing its efforts on growing in its mortgage business since the recession, it has done well to make the most of the vacuum created by Bank of America and Citigroup’s de-emphasis of the industry.

We capture the impact of changes in mortgage banking performance on the share price of the banks with the largest mortgage operations in the U.S. – Wells FargoU.S. BancorpJPMorgan Chase and Bank of America – in a series of interactive dashboards.

The table above captures the break-up of total mortgages serviced by each of these banks in terms of ownership. In addition to servicing mortgages that they originate and continue to hold on their balance sheets, each of these banks also service a sizable portfolio of third-party mortgages. As detailed here, third-party mortgages make up 70% of the $3.3 trillion in total mortgages serviced by these five banks.

The table above highlights how the total mortgage servicing portfolios of these banks have changed over recent quarters. The overall change in industry dynamics over the years is evident from the fact that these five banks service 35% of all outstanding mortgages in the U.S. now – down from almost 60% in late 2012. The total value of U.S. housing debt outstanding is taken from the quarterly data compiled by the New York Fed.

Notably, Wells Fargo’s mortgage servicing portfolio jumped in Q3 2017 thanks to its acquisition of mortgage servicing rights (MSRs) worth $51 billion from Seneca Mortgage Investments. While the mortgage industry remains Wells Fargo’s core area of focus in the long run, poor industry conditions, coupled with growth restrictions imposed by the Fed on the bank, are expected to weigh on the mortgage business in the near future.

On the other hand, Bank of America and Citigroup have reduced their third-party MSR portfolios substantially over the years as stricter regulatory requirements since the economic downturn have made the mortgage servicing business less profitable – resulting in these banks running off their third-party mortgage servicing portfolios. While Citigroup intends to exit the U.S. mortgage servicing industry completely by the end of this year, Bank of America has shrunk its mortgage unit to a size so small that it will no longer report mortgage banking revenues separately.

Details about how changes to Mortgage Banking performance affect the share price of these banks can be found in our interactive model for Wells Fargo | U.S. Bancorp | JPMorgan Chase | Bank of America

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