Two of the nation’s largest mortgage lenders – JP Morgan Chase and Wells Fargo – released their quarterly earnings report last Friday.
The headline figures? The revenue generated by both banks has been hammered by record-high mortgage interest rates, record-low levels of mortgage applications, and ongoing market volatility. Year on year, the value of new mortgage lending is down almost 60% for Wells Fargo, and 67% for JP Morgan Chase.
- JP Morgan Chase and Wells Fargo have seen significant reductions in their residential lending revenue in Q3 2022.
- These drops have been driven by record-low demand for new mortgages.
- Mortgage demand, in turn, has been reduced by record-high interest rates, and ongoing market volatility.
Mortgage Earnings Are Down For Both Banks
Wells Fargo’s 3rd quarter 2022 earnings report indicates that mortgage applications are well down on last year. Wells Fargo originated $21.5 billion of residential first liens in Q3 2022, a 36.1% decline from Q2 2022 and down 58.6% from Q3 2021. This has contributed to a 52% year-over-year decline in the bank’s residential lending revenue.
JP Morgan's 3rd quarter 2022 earnings report paints a similar bleak picture. Mortgage origination in Q3 2022 amounted to $15.2 billion. Compared to the previous quarter, this is a 45.5% drop in the value of new mortgages. Compared with the same quarter last year, earnings have dropped even further – by 67%.
Though neither bank makes it into Investopedia's round-up of Best Mortgage Lenders in 2022, their struggle to attract new mortgage customers are indicative of the market as a whole. Interest rates for new mortgages ended the quarter at the highest level since 2007, and have driven weekly mortgage applications to a 25-year low, according to the Mortgage Bankers Association.
High Interest Rates and Market Volatility Hit The Mortgage Market
The most immediate reason for the record-low demand for new mortgages is simply that interest rates are so high at the moment. Macroeconomic factors had kept the mortgage interest rates historically low for much of this year, in particular driven by the Federal Reserve buying billions of dollars of bonds in response to the pandemic's economic pressures. However, record high inflation over the past two quarters has caused the Fed to reverse course and raise the Federal Discount Rate five times this year. These actions have driven mortgage interest rates to 20-year peaks over the past few weeks.
There are some other factors at play, however. As JPMorgan CEO Jamie Dimon noted, mortgage lenders are facing a number of challenges. “You have inflation, higher rates, higher mortgage rates, oil, volatility, [and] war,” he said, so a drop in residential lending revenue across the market is “quite predictable.”
Despite the downturn in mortgage applications, both banks stated that their overall financial position remains strong.