Wells Fargo and JPMorgan Chase usually open the quarterly earnings seasons in the mortgage space, giving analysts something to chew on before nonbanks release their financial reports. In the first quarter of 2024, the big banks showed a challenging reality for originations.
The banks’ Q1 2024 earnings, released on Friday, showed declining home loan volumes compared to the prior quarter — and executives believe that the macroeconomic landscape will remain tough in the months to come.
Wells Fargo CEO Charlie Scharf told analysts that “credit trends remain generally consistent“ and loan delinquencies continue to perform as forecasted. But Scharf also said that “markets and rates will likely remain volatile.“
Meanwhile, JPMorgan Chase Chairman and CEO Jamie Dimon, who recently called for “mortgage regulatory simplification,” said that many economic indicators remain favorable, but ”looking ahead, we remain alert to a number of significant uncertain forces.”
Dimon’s list of concerns includes geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.
“We do not know how these factors will play out, but we must prepare the Firm for a wide range of potential environments to ensure that we can consistently be there for clients,“ Dimon said in a prepared statement.
Regarding the U.S. economy, the Bureau of Labor Statistics on Wednesday reported that consumer prices were up 3.5% in March compared to a year earlier. The index accelerated from February, when it was up 3.2% year over year.
The hotter-than-expected inflation figure raised questions about the Federal Reserve’s appetite to cut rates this year. It also brought the 30-year fixed-rate mortgage to an average of 7.21% on Friday, up from 7.15% one week earlier, according to HousingWire’s Mortgage Rates Center.
Volumes are down
The macroeconomic landscape adds more pressure on mortgage volumes, which are already shrinking. Wells Fargo’s volume declined to $3.5 billion during the first quarter, down 22% quarter over quarter and down 38% year over year.
The bank completed its exit from the correspondent business last year, so it did not provide figures for that channel. All of its production in Q1 2024 came from its retail branches and was mainly focused on purchase loans.
Refinances comprised 18% of the volume in the first quarter, down from 24% in the previous quarter.
According to chief financial officer Michael Santomassimo, Wells Fargo’s performance was based on its “strategic“ objective to “simplify“ the home loan business and address the decline in the mortgage market. It also included a 33% reduction in the company headcount from a year ago.
Wells Fargo’s mortgage servicing rights — the carrying value at the end of the period —declined by 3% quarter over quarter to $7.2 billion in Q1 2024. Compared to Q1 2023, unpaid principal balance (UPB) decreased by 18%. Santomassimo noted that the bank “made significant progress in reducing the amount of third-party mortgage loans we service, down 21% from a year ago.“
Meanwhile, at JPMorgan Chase, origination volume totaled $6.6 billion in Q1 2024, down 8% from the previous quarter’s figure of $7.2 billion. The bank also reported an increase of 16% compared to the same period last year, but at that time, federal regulators had not yet seized First Republic Bank and sold it to JPMorgan.
Origination volume through its correspondent channel reached $2.2 billion in Q1 2024, a decline of 12% quarter over quarter. Retail volume came in at $4.4 billion, down 6% in the same period.
Regarding its servicing portfolio, JPMorgan’s mortgage servicing rights increased to $8.6 billion in Q1 2024, up from $8.5 billion in Q4 2023 and up from $7.7 billion in Q1 2023.
Mortgage earnings
Wells Fargo recorded $864 million in revenues related to its home lending business in Q1 2024, a 3% increase from $839 million in the prior quarter slightly above the $863 million posted in the opening quarter of 2023.
The bank said in its earnings release that revenue in “home lending was stable, reflecting higher mortgage banking income, offset by lower net interest income on lower loan balances.“
Net servicing income declined 19% quarter over quarter but increased 8% year over year to $91 million.
Mortgage banking non-interest income at Wells Fargo came in at $230 million in Q1 2024, an increase from $202 million in the previous quarter and a decline from $234 million in the same period of 2023.
Meanwhile, JPMorgan Chase’s home lending net revenue reached $1.18 billion in Q1 2024, including almost $392 million from the acquisition of First Republic, an increase of 2% from $1.16 billion in the previous quarter.
Mortgage servicing revenues at JPMorgan declined to $144 million in Q1 2024, compared to $179 million in Q4 2023. In Q1 2023, these revenues came in at $148 million.
Overall, Wells Fargo delivered a $4.6 billion profit in Q1 2024, compared to $4.9 billion in the same quarter of 2023. Revenues from January to March were $20.8 billion, up from $20.7 billion in the same period last year.
At JPMorgan, the $13.4 billion net income in the first quarter (including First Republic) was higher than the $9.3 billion in Q4 2023 and the $12.6 billion in Q1 2023.
