Fresh Mortgage Originations In Q3 Hit A Twelve-Year High, But The Largest U.S. Banks Didn’t Benefit Much

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Mortgage origination activity levels in the U.S. saw a small uptick in Q3 2018, with data compiled by the Mortgage Bankers Association showing that $457 billion in mortgages were originated in the country over the quarter – up from $452 billion in Q2 2018. While this was well below the $490-billion figure a year ago, the year-on-year decline can be attributed purely to a sharp reduction in mortgage refinances over recent quarters due to the Fed’s ongoing rate hike process. In fact, fresh mortgage originations for Q3 2018 reached $346 billion – the highest level since Q3 2006 – thanks to an upbeat economic outlook and seasonally increased activity levels. Also, mortgage refinances were responsible for just 24% of total mortgage originations for the quarter, which was the lowest proportion since Q3 2000.

While the improved market for home loans is a good thing for the U.S. banking industry, the five largest U.S. commercial banks have yet to gain from this trend. Their total mortgage origination volume fell from almost $101 billion in Q2 2018 to below $97 billion in Q3 2018 – something that can be attributed to the fact that these banks have a stronger hold on the mortgage refinancing market.

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.

*Total U.S. Originations includes fresh mortgages as well as mortgage refinances as compiled by the Mortgage Bankers Association

Wells Fargo has remained the largest mortgage originator in the country since before the economic downturn. While the bank was focused on the mortgage business for decades before the downturn, it tightened its grip in the industry after 2008 thanks to its acquisition of Wachovia – originating one in every four mortgages in the country in early 2010. Although weak conditions in the mortgage space dragged down Wells Fargo’s market share to a low of 11% on a couple of occasions in the past (including Q4 2015 and Q2 2018), the bank’s growth restriction resulted in the figure falling to a low of just 10% in Q3 2018.

Notably, though, there has also been a drastic reduction in the combined market share of these five banks over recent years from over 50% in 2011 to just 21% now. While a key reason for this was the sizable reduction in mortgage operations by Bank of America and Citigroup after suffering huge losses in the wake of the recession, there has also been an overall reduction in mortgage market share for U.S. banks as a whole due to stronger growth in credit unions across loan categories.

With the Federal Reserve likely to continue hiking interest rates going forward, mortgage refinances should remain under pressure over the next five or six quarters. However, the strong economic outlook should fuel an increase in fresh mortgage originations over this period – more than making up for the shortfall in refinances.

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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