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Bank of America reports double-digit decline in mortgages in Q2

Mortgage originations totaled $14.5 billion in the second quarter, down 11.5% from the first quarter

Depositary lender Bank of America‘s top executives said Monday their customers haven’t slowed down their activities, despite a fear of a recession in the U.S. economy.

“We’re mindful of the debate about a future recession, and we have prepared the company across the last decade-plus, through responsible growth, to be prepared for that,” said BofA CEO Brian Moynihan, during a call with analysts. “But as we see our current customer base, we are not seeing them slow down in terms of their activities.”   

BofA reported growing deposits — to a record level above $1 trillion — and increasing consumer spending for the second quarter of 2022, according to Securities and Exchange Commission (SEC) filings.

However, like its peers, the bank is not immune to surging interest rates: Gains in the consumer banking division declined during the second quarter and mortgage origination volume was down dramatically.

Bank of America posted a $2.88 billion profit in its consumer banking division in the second quarter, down from a $2.97 billion profit in the first quarter.

Mortgage originations from the bank totaled $14.5 billion during the second quarter, an 11.5% drop from $16.4 billion in the first quarter and 28.5% below the roughly $20 billion hit in the second quarter of 2021.

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BofA’s decline follows its competitors, JP Morgan and Wells Fargo, which also had double-digit declines in originations during the second quarter, according to Q2 earnings releases. 

On the bright side, BofA’s home equity originations increased from $2 billion in the first quarter to $2.5 billion in the second quarter. In the second quarter of 2021, it was $1.2 billion.

“For the first time in years, home equity balances increased modestly,” Alastair Borthwick, the bank’s chief financial officer, said to analysts. 

Bank of America had $228 billion in outstanding residential mortgages on its books through June 30, up from $226 billion in the first quarter and $214 billion in the second quarter of 2021, according to its earnings statement. 

The home equity portfolio went from $30.5 billion as of June 30, 2021, to $27 billion as of June 30, 2022. 

Bank of America’s total mortgage-backed securities reached $44.3 billion fair value as of Sept. 30, compared to $62 billion as of March 31.  

The bank reported a consumer net charge-off of $525 million in the second quarter, an increase of $185 million from the previous quarter, including $85 million from non-core mortgage sales. 

According to Borthwick, the bank sold an old portfolio of residential mortgages.

“We do that periodically anyway. But in this case, it was about $3.3 billion. And we did have a loss,” he said to analysts.

The executive added: “It was largely offset by a gain somewhere else. So, I wouldn’t think about it as much of an economic loss — but it did temporarily inflate the charge-offs, which is why we called it out.”  

Bank of America’s stock was trading at $32.62 around 11 a.m. EST Monday, up 1.14% from the previous day.

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