HereÕ why Bank of AmericaÕ mortgage banking revenue is shrinking

Bank may not be pulling away from mortgage lending

Bank of America is clearly seeing a decrease in its mortgage banking revenue, but the reasons why may not be because the bank is pulling away from mortgage lending.

Wednesday, the bank reported its earnings, and only mentioned mortgage banking revenue once in the earnings report. That one mention didn’t even go into details, it simply said mortgage banking revenue partially offset gains in other areas.

Just a few years ago, Bank of America could easily report $1 billion per quarter in its mortgage banking income. However, in the first quarter of 2018, the income from this sector was so small that it was simply lumped into the “all other income” section from its consumer bank.

At first glance, it would seem this mortgage giant, which ranked fourth in the number and volume of mortgages it originated in 2016, according to HMDA data prepared by iEmergent, is slowly leaving mortgage lending.

HousingWire discussed this possibility Monday morning in the bank’s earnings coverage, and later that afternoon in our weekly news podcast.

But according to the bank itself, that couldn’t be further from the truth. Bank of America CEO Brian Moynihan explained to HousingWire that the difference lies in what the bank is doing with the loans after they are originated. Because the bank recently shifted to keep more of its mortgages on its balance sheet, there’s no sale, or gain on sale. This then has a negative effect on mortgage banking income, but does not mean the bank isn’t originating loans.

Wednesday, the bank even launched its new digital mortgage lending platform, then listed this as one of its accomplishments for 2018 in its first quarter earnings release.

In the first quarter of 2018, the bank held an average balance of $204.8 billion in residential mortgages, according to a bank filing. This is up slightly from $202.2 billion in the fourth quarter and from $193.6 billion in the first quarter of 2017.

But while the bank may be keeping more mortgages on its balance sheet, its total originations are still decreasing. Its total loan production on first mortgages in the first quarter decreased to $9.4 billion. This is down from $12.7 billion in the fourth quarter, and from $11.4 billion in the first quarter of 2017.

But despite the bank’s position on mortgage lending, it seems to be struggling to maintain a good relationship with loan officers.

As one loan officer put it:

“I firmly believe ‘big’ depository banks maintain a mortgage division because it helps them with other parts of the business – like CRA requirements – but if it was up to them they wouldn't be on the mortgage business.”

Read more about that, here.

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