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JPMorgan mortgages as profitable as a 10-year Treasury bond

Where did the incentive to make mortgages go?

If the lending environment continues, JPMorgan Chase (JPM) might have been better off putting its money into a 10-year Treasury bond rather than provide mortgages. At least that is what one article in Fortune is asserting.

The article noted that every time the bank makes a home loan, on average, it loses $1,500. This is down from $750 per loan from a year ago and marks a significant decline from the $3,300 it booked the year before that.

That might not be all that bad if JPMorgan were still making good money on the other parts of the mortgage process, like collecting interest or selling off loans. But it's not. Interest rates are still near lows. What's more, the rise in interest rates has squeezed the difference between what banks can charge mortgage borrowers and the interest they have to promise the purchasers of those loans. That difference a year or so ago accounted for a huge source of profits.

Put it all together and JPMorgan made just $114 million in income from its entire mortgage operations in the first quarter. That was down from nearly $700 million a year ago and $1.1 billion the quarter after that. But bankers like to talk about their businesses not in total profits but the returns they generate. Three quarters ago, JPMorgan's mortgage business had a return on investment of 23%. Last quarter, it was 3%. JPMorgan could have almost done just as well by putting all of its money in a 10-year Treasury bond and calling it a day.

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