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Logan Mohtashami talks jobs report, mortgage forbearance

Lead Analyst Logan Mohtashami discusses his recent article on the latest jobs report and the most likely impact on the housing market and mortgage forbearance.

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JPMorgan Chase’s mortgage margins narrow in Q1

Correspondent channel still growing faster than retail

JPMorgan Chase increased originations by 21% over the fourth quarter of 2020, but compressed margins ate away at the bank’s mortgage profits in the first quarter of 2021.

The New York-headquartered bank originated $39.3 billion in home loans during the first quarter, a big jump from the $32.5 billion originated in the prior quarter. Notably, JPMorgan grew mortgage originations in both its retail division – $23 billion in Q1, up 14% from $20.1 billion in Q4 – and its correspondent channel, which rose to $16.3 billion in Q1 from $12.4 billion in the fourth quarter (31%).

Production revenue from mortgage fees and related income declined to $757 million from $803 million in the fourth quarter. It had 178,776 home loans on its balance sheet at the end of the quarter.

According to its earnings statement, JPMorgan posted revenue of $1.458 billion in the first quarter, roughly even with the fourth quarter (overall revenue in its consumer business, which includes credit cards and auto loans, declined 6%).

Gain-on-sale margins on home loans fell to 193 basis points in the fourth quarter, a drop of 54 basis points from the fourth quarter. Its mortgage servicing rights valuation was up 38% from the prior quarter, above Wall Street’s expectations. The bank also pared back its allowance for credit losses in home lending to $1.4 billion.

Bose George, an analyst at Keefe, Bruyette & Woods, said in a note Wednesday that the decline in margins was mostly due to market factors as primary/secondary spreads narrowed considerably during the quarter. He also partly attributed the decline to the share of retail – a higher margin business – to correspondent, a lower margin line.

According to recently released HMDA data, JPMorgan Chase’s mortgage origination volume for single-family lending issued 224,833 loans totaling $95.6 billion. The company’s average loan size in 2020 was $425,306, highest among the top 50 single-family lenders of 2020.

In a note to shareholders last week, CEO Jamie Dimon said he believes the economy is about to enter a “Goldilocks moment” of rapid growth alongside slowly rising inflation and interest rates.

Though JPMorgan’s mortgage origination business didn’t catch fire in the first quarter, the bank made a record $3 billion in investment-banking fees.


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