JPMorgan Chase (JPM) reported record mortgage production revenue for the third quarter, as the big bank beat analysts' earnings estimates.
Mortgage production and servicing net income was $563 million, up $358 million from year-ago figures as origination momentum builds and housing turns a corner. Mortgage production-related revenue, excluding repurchase losses, was a record $1.8 billion, an increase of $475 million, or 36%, from the prior year's quarter.
But CEO Jamie Dimon said mortgage servicing costs will remain elevated through at least 2013 and will take about eight quarters before dropping to zero.
JPMorgan reported servicing expenses of $1.1 billion, up 23% year over year.
He told analysts during a Friday morning conference call that he doesn't expect any decrease in servicing expenses next quarter and only a small decline in 2013 although he predicted a significant decline in servicing expenses in 2014. He cautioned banking analysts that those were just rough predictions.
JPM reported mortgage originations of $47 billion, up 29% over the year-ago period, reflecting wider margins and higher volumes. As mortgage rates rise as the economy improves, however, production levels are expected to decline. Still, Dimon said he doesn't expect the bank to loosen its mortgage lending standards anytime soon.
About 75% of its origination numbers came from refinances with another 15% coming from the government's Home Affordable Refinance Program.
Repurchase losses were $13 million, nearly neutral to the $10 million loss in the second quarter.
At least one analyst on the conference call raised concerns that repurchase claims for the industry are up and some recent legal rulings have gone against the industry. JPM said it would continue to watch the issue and will adjust its reserves if necessary.
The bank noted during the conference call that it remains challenged by mortgage defaults and their related costs, including costs associated with the national servicing consent order.
Loan loss reserves stand at $23 billion. The current-quarter provision reflected a $900 million reduction in the allowance for loan losses.
The bank said it expects to see more reserve releases if current trends that show a recovering housing market continue.