JPMorgan Chase reports jump in mortgage profits in Q3

Gain-on-sale margins rose to 148 bps in Q3, a 17 bps increase from Q2


JPMorgan Chase originated $46.1 billion worth of mortgages from July to September, up 5% from the previous quarter and up 43% year-over-year, the bank announced on Wednesday.

Jeremy Barnum, chief financial officer at Chase, said during the company’s third quarter earnings call that the increase reflects “record purchase volume and share gains in the refi market.”

Year over year, home lending at the bank rose 27.3%. Mortgage fee and related income came in at $596 million, up from the $548 million JPMorgan Chase generated in the second quarter. In the second quarter of 2020, at the height of the mortgage boom, JPMorgan Chase reported $1 billion in revenue.

The depository bank’s third quarter report also revealed an increase in its gain-on-sale margin, which rose 17 basis points from the previous quarter to 148 bps.

This is perhaps the most notable development since the second quarter of 2021 saw key players in the mortgage banking space such as loanDepot, United Wholesale Mortgage, and, report declines in their GOS margin- a sign that the refi wave was likely nearing its end.

Chase’s gain-on-sale margin was “better than” what Keefe Bruyette & Woods analyst Bose George expected. In an analyst note, George also said that his expectations “had recently improved following non-bank originator commentary on GOS trends late in the quarter.”

According to KBW, the increase in the depository’s GOS margin can be attributed to “competition easing modestly in light of application volumes remaining stronger than previously expected.”

The bank’s channel mix shift was not a contributor to the GOS margin since the retail and correspondent mix remained flat quarter-over-quarter, coming in at 57% and 43%, respectively.

Meanwhile, mortgage servicing right (MSR) valuation rose 7% from the previous quarter, with the carrying value increasing to 104 basis points from 97 basis points the second quarter.

The increase was “slightly better” than KBW’s expectations given the relatively flat rates, with the 10-year treasury rates creeping up 3 basis points from the previous quarter and the 30-year primary mortgage remaining “relatively flat” around 3.0%.

Overall, Chase reported a net income of $11.7 billion for the third quarter. The depository also had a reported income of $29.6 billion and a managed revenue of $30.4 billion.

Jamie Dimon, chairman and CEO of Chase, said in a statement that the bank “delivered strong results as the economy continues to show good growth-despite the dampening effects of the Delta variant and supply chain disruptions.”

Looking ahead, Dimon noted that the bank is “halfway through [its] plan to open 400 branches in new markets by the end of 2022, with approximately 30% of these branches in low-to-moderate income communities.”

Wells Fargo and Bank of America report their third quarter earnings on Thursday.

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