As major lenders start releasing their second quarter earnings reports, Fitch Ratings says future filings will show the impact of higher interest rates on banks' mortgage earnings.
The Mortgage Bankers Association's latest report shows the 30-year fixed average climbing to 4.68% in the week ended July 5, the ninth consecutive weekly increase and the highest rate in nearly two years.
With the refinance boom slowing and new purchase loans taking over, Fitch says mortgage volume will take a hit, putting a dent in the earnings of banks that have a major presence in the market.
"For some banks, mortgage banking has accounted for as much as 20% of non-interest income and nearly 8 to 10% of net revenue," the ratings agency said. "A mortgage banking decline of as much as 50% due to higher interest rates and refinancing burnout could represent a 4% revenue decline for regional banks, a significant drop that we believe would need to be offset to keep revenue at least level."
Some banks have already seen volume dip as refinances dwindle. JPMorgan and Citigroup both reported a decline in mortgage origination revenues in Q2, though Wells Fargo posted an increase.
The MBA is forecasting $597 billion in purchase originations and $835 billion in refinance originations in 2013.
For perspective, there were $2,430 billion in mortgage originations in 2007, according to Inside Mortgage Finance. Lenders originated 10.4 million mortgages in 2007, down 25% from 2006. Mortgage originations totaled $1,500 billion in 2008; $1,840 billion in 2009; $1,630 billion in 2010; $1,470 billion in 2011 and $1,905 billion in 2012, up 29.6%.