What Wells Fargo, JPMorgan earnings say about 1Q mortgage volume

Mortgage production numbers from Wells Fargo and JPMorgan Chase are typically early indicators of broader industry conditions for the period, and given their latest earnings reports, first quarter volume overall might have been better than expected.

Wells’ mortgage originations totaled $51.8 billion in the first quarter of 2021, down from $53.9 billion in the fourth quarter of 2020. JPMorgan Chase’s aggregate number for home lending in the first quarter was $39.3 billion, up from $32.5 billion in the quarter before.

The 21% gain at JPM and the nearly 4% drop at Wells suggest first-quarter originations at multichannel lenders may be relatively more favorable than earlier industry forecasts for a six to 13% decline, but it’s Wells’ results that may be more typical, analysts said.

“We see correspondent as an opportunistic channel for JPM, so we think the volume read-across to the industry is not a precise exercise,” researchers at KBW, a Stifel company, said in a note published Wednesday.

When correspondent volume is removed, the consecutive-quarter origination gain at JPM is a little lower, at 14%. Slightly more than half or $23 billion of JPM’s home lending was retail, compared to $16.3 billion in correspondent loans.

While JPM’s 14% gain contrasts Fannie Mae’s forecast for a 6% decline and the Mortgage Bankers Association’s projections for a 13% drop, it is in line with an analysis of MBA loan application rates by KBW researchers, who predicted that originations could increase by as much as 15% in the first quarter.

“With higher rates, mortgage lock margins have tightened and refi applications have slowed, but the overall market is still robust,” said Chief Financial Officer Jennifer Piepzak in JPM’s earnings call.

Wells’ retail volume was up from the fourth quarter by 4%, totalling $33.6 billion.

“We have strong demand in the retail channel and we continue to build up volume in the correspondent, non-conforming market,” said Mike Santomassimo, chief financial officer at Wells Fargo, said in the company’s earnings call.

While these figures suggest that the overall market may see originations gains in the quarter, a lot will depend on channel mix, company type and each lender’s operations efficiency. For example, early indicators suggest nonbank origination gains to date have outpaced depositories’ partly due to conservatism about credit amid a pandemic.

However, given that banks like JPM and Wells released loan-loss reserves set aside for potential distress that didn’t materialize, it’s possible that they and other depositories could be more active in the mortgage market if the returns are attractive enough.

Released reserves boosted Wells’ overall first-quarter net income to $4.7 billion from $3 billion in 4Q20 and $653 million a year ago and despite high expenses in the first quarter.

JPM generated a record-breaking $14.3 billion in total earnings, up from $2.87 billion a year earlier and $12.1 billion the previous quarter due to investment banking fees, but struggled with weak non-mortgage loan demand.