: The sharp rise in mortgage rates didn’t just hurt homebuyers — banks are now losing money on loans

A surge in mortgage rates in the middle of last year pushed the housing market into a recession. Banks saw mortgage demand drop sharply and bore losses, according to their newly-released earnings reports.

JPMorgan Chase & Co.
Wells Fargo

and Citigroup

were among some of the major banks that announced they had seen a significant decline in mortgage originations.

A separate report from the Mortgage Bankers Association also noted that certain banks actually lost money on originating mortgages for the first time since 2008, when the industry group began tracking the data.

Independent mortgage banks and mortgage subsidiaries of chartered banks in particular lost an average of $301 on each loan they originated in 2022, the MBA said in a report.

“For the first time since the inception of MBA’s report in 2008, net production income was in the red in 2022, with losses averaging 13 basis points,” said Marina Walsh, MBA’s vice president of industry analysis.

“The rapid rise in mortgage rates over a relatively short period of time, combined with extremely low housing inventory and affordability challenges, meant that both purchase and refinance volume plummeted,” she added.

“The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan,” Walsh said.

At the big banks, origination volume fell as rates took off. Mortgage rates jumped from the 3% to 4% range in early 2022 to the 6% range early this year, according to data from Freddie Mac

Comparing the first quarters of 2022 and 2023 by mortgage originations, volume fell by 77% at JPMorgan to $5.7 billion from $24.7 billion, the company said.

Wells Fargo said its mortgage origination volume fell by 83% to $6.6 billion in the first quarter of 2023, as compared to $37.9 billion last year.

Looking at the drop in originations overall and the challenges in reducing costs, Walsh said that there was “no denying the very difficult circumstances in which mortgage companies are still operating today.”

But since the start of 2023, rates have since hovered around the 6% range, dipping week after week. 

According to the MBA’s weekly reports, demand for mortgages rose again in the last week as rates dropped for the fifth week in a row. Most of that demand is coming from home buyers.

Nonetheless, MBA expects mortgage volume to drop again this year, before rebounding in 2024 and 2025.


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