Mortgage production hobbled by rising rates, falling demand

Some of the nation's largest banks have seen mortgage production plummet over the last quarter

Mortgage production hobbled by rising rates, falling demand

Rising interest rates and dwindling demand for refinance hobbled mortgage production at big banks in the last quarter.

Both JPMorgan Chase and Wells Fargo saw income from mortgage banking plummet, according to a Friday Washington Post report. Wells Fargo took the worst hit, reporting $1.6bn in mortgage banking income for the third quarter, a 43% drop from Q2. The bank reported that it received $87bn in mortgage applications in Q3, compared to $188bn the previous year, the Post reported.

JPMorgan saw a 14% year-over-year drop in loan originations in the third quarter, but still managed a 13% year-over-year increase in mortgage banking income, according to the Post. However, the lender’s legal woes took a toll, leading to its first quarterly loss since 2004. The bank posted a loss of $380 million in Q3 after racking up $9.2bn in legal expenses.

“While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense,” JPMorgan CEO Jamie Dimon said in a statement.

The mortgage market has been largely fueled by refinancing, as historically low rates lured homeowners to the banks. But rates rose over the last quarter on speculation that the Federal Reserve would end its $85bn-per-month bond-buying stimulus program, causing many prospective borrowers to put on the brakes.

Rates lowered slightly after the Fed announced last month that it would keep the program in place, but the average rate on a 30-year fixed rate mortgage is still at 4.23%, up from 3.34% a year ago, according to data from Freddie Mac.