Mortgage lending expected to disappoint as big banks gear up for earnings

Citigroup, Wells Fargo, JPMorgan report early Friday

JPMorgan Chase, Citigroup and Wells Fargo are kicking off earnings season this year early Friday morning, ushering in a wave of financial companies, revealing exactly how companies performed in the second quarter of 2017.

The three big banks typically give a preview of how the rest of the mortgage finance market will do. But according to an article in MarketWatch by Andrea Riquier, the three banks will just be the latest in a long string of disappointing earnings seasons stretching back to the financial crisis. Instead, the article quoted Jefferies analysts saying, “We see more misses than beats.”

And mortgage originations aren’t likely to do much better.

Back in January, the Mortgage Bankers Association updated its forecast for the year, saying, “Our current forecast for mortgage origination volume is for it to be about $1.56 trillion in 2017, now that’s down from nearly $1.9 trillion in 2016. We expect that to flatten out a little bit in 2018 and come in at about $1.58 trillion.”

In its original forecast, the MBA predicted mortgage originations to hit a total of $1.63 trillion in 2017.

Now, in the MarketWatch article, analysts say the second quarter, specifically, still won’t live up to expectations.

From the article:

The Mortgage Bankers Association had forecast origination volumes would increase 28% from the first quarter to the second, Jefferies analysts wrote in a note last week, in line with the normal seasonal bump from the spring selling season. But the Jefferies analysts are skeptical banks will see lending that strong. The MBA, Fannie Mae, and Freddie Mac all forecast that originations throughout 2017 will be about 20% lower than in 2016, largely because the refinance boom is finally over.

As a look back, here’s an overview of how the three big banks performed in the first quarter of this year.

While JPMorgan Chase beat revenue and earnings per share expectations for the first quarter 2017, the bank’s mortgage department struggled, continuing a downward trend in mortgage net revenue.

Wells Fargo’s mortgage business in the first quarter of 2017 fells across the majority of its divisions. However, the mega bank noted the drop was not a surprise.

The bank’s first–quarter earnings stated, as expected, residential mortgage loan originations declined in the first quarter, down to $44 billion, from $72 billion in the fourth quarter.

Citigroup first-quarter earnings showed that the bank is continuing to move further and further away from mortgages and into other lines of business.

According to the bank, Citi’s residential first mortgage originations plummeted in the first quarter, dropping from $5.6 billion in the fourth quarter of 2016 to $3.8 billion in the first quarter of 2017.

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