At two top-five depository mortgage lenders, Wells Fargo and JPMorgan Chase, the third quarter of 2023 earnings reflected different strategies in the mortgage space.
During Q3, Wells Fargo faced the consequences of exiting the correspondent lending channel in January, which resulted in reduced revenues from mortgage origination and servicing compared to the previous quarter.
Meanwhile, JPMorgan, which rescued jumbo producer First Republic Bank earlier this year, improved its earnings on both sides of the business.
On Friday, Wells Fargo and JPMorgan opened the earnings season for mortgage lenders, giving analysts something to chew on before nonbanks – including Rocket Mortgage, United Wholesale Mortgage, Pennymac, Rithm Capital and Mr. Cooper – report their earnings in the coming weeks.
At Wells Fargo, mortgage originations reached $6.4 billion from July to September, down 70% year over year and about 18% from the previous quarter.
The bank completed its exit from the correspondent channel in Q3 2023. All the production in the period came from the bank’s branches, mainly focused on purchase loans. Refinancings consisted of 16% of the volume in the third quarter.
Wells Fargo’s mortgage servicing rights – carrying value (period-end) – increased by 2%, rising to $8.4 billion in Q3, up from $8.2 billion in Q2. Compared to Q3 2022, servicing UPB decreased by 14%.
Meanwhile, at JPMorgan, origination volume totaled $11 billion in Q3 2023, including $700 million from First Republic Bank, which was focused almost entirely on jumbo loans. Federal regulators seized First Republic in May and sold it to JPMorgan.
Excluding First Republic Bank’s production, JP Morgan’s mortgage volume increased by 1.9% compared to Q2 2023 but declined by 14.8% compared to the same period last year.
Through its correspondent channel, origination volume reached $4.2 billion in Q3 2023, an increase of 8% quarter over quarter and a 2% decline year over year.
Retail volume came in at $6.8 billion, a decline from $7.3 billion in Q2 2023 and $7.8 billion in Q3 2022. Excluding First Republic Bank, the volume slightly declined to $6.1 billion in the third quarter from $6.2 billion in the second quarter.
Regarding its servicing portfolio, JPMorgan’s mortgage servicing rights increased to $9.1 billion in Q3 2023, up from $8.2 billion in Q2 2023 and $8.1 billion in Q3 2022.
Mortgage earnings
Wells Fargo recorded $840 million in revenues related to its home lending business in Q3 2023, a decrease from $847 million in the prior quarter (-1%) and $973 million in the same quarter in 2022 (-14%).
The bank’s decline in mortgage banking income reflects “lower originations and lower servicing income, which included the impact of sales of mortgage servicing rights,” according to the earnings report. The net servicing income declined 34% quarter over quarter to $41 million and was down 49% year over year.
Mortgage banking noninterest income at Wells Fargo came in at $193 million in Q3 2023, a decrease from $202 million in the previous quarter and $324 million in the same period of 2022.
Meanwhile, JPMorgan Chase’s home lending net revenue reached $1.25 billion in Q3 2023, up 24% from the prior quarter and up 36% year over year.
However, the acquisition of First Republic brought in $351 million in mortgage net revenue, which means the net revenue only for JP Morgan’s operations was about $900 million in the third quarter of 2023, up 17% quarter over quarter and down 2% year over year.
Mortgage servicing revenues at JPMorgan increased to $255 million in Q3 2023 from $172 million in Q2 2023. In Q3 2022, such revenues came in at $220 million.
Overall, Wells Fargo delivered a $5.8 billion profit in Q3 2023, compared to $3.6 billion in the same quarter of 2022. Overall revenues came in at $20.8 billion from July to September, up from $19.5 billion in the same period last year.
Charlie Scharf, Wells Fargo’s CEO, said in a statement that the bank’s increased income is due to “both higher net interest income and noninterest income as we benefited from higher rates and the investments we are making in our businesses.“
At JPMorgan, the $13.1 billion net income in the third quarter (including First Republic) was higher than the $14.5 billion in the previous quarter but lower than the $9.7 billion in the same quarter of 2022.
Jamie Dimon, the bank’s chairman and CEO, said the company delivered “solid results” while consumers are spending down their excess cash buffers. Regarding the macro landscape, he noted persistently tight labor markets and high government debt levels are increasing the risks that inflation remains elevated and that interest rates rise further from here.
The war in Ukraine, compounded by last week’s attacks on Israel, may have far-reaching impacts on energy and food markets, global trade and geopolitical relationships. “This may be the most dangerous time the world has seen in decades,” Dimon said.
Dimon said the bank intends to adapt “very quickly” to the Basel III rules, which will strongly impact the jumbo side of the mortgage business, according to industry experts. “However, we caution that such material regulatory changes would likely have real-world consequences for markets and end users.”
