Moody's: Mortgage revenues at US banks to remain depressed

by Francis Monfort18 Oct 2018

US banks will see mortgage banking revenues remain at depressed levels, continuing a downward trajectory that has run for some time, according to a new report from Moody’s.

The report follows an Oct. 11 announcement by Freddie Mac that the 30-year fixed-rate mortgage rate reached its highest level since April 2011.

Moody’s expects that the higher rates will constrain origination volumes as well as increase the possibility that some customers will have trouble servicing their existing debt. Moody’s said both circumstances are credit negatives for US banks.

The downward trend in banks’ mortgage revenues reflects lower origination volumes and gain-on-sale margins. Moody’s attributed the decline in volume to the period of rising home values and low interest rates during which consumers refinanced their mortgages. Refinancing volumes are now at lower levels and home purchases are the source of most current originations.

Additionally, excess industry capacity drove heightened pricing competition, which in turn reduced gain-on-sale margins. Moody’s noted the possibility that gain-on-sale margins could rise as industry capacity contracts despite volumes staying steady.

Moody’s also said that these trends were illustrated in the third-quarter earnings reports of Wells Fargo and JPMorgan Chase. Results from the country’s two largest mortgage originators showed mortgage banking revenue remains at or near multi-year lows.