JPMorgan Chase and Wells Fargo & Co., two of the nation’s largest banks, each faced a double-digit decline in their mortgage origination volumes in the third quarter of 2022. And the coming days don’t look any kinder: the banks’ top executives said on Friday the landscape remains challenging due to macroeconomic and geopolitical issues. 

That’s a taste of what to expect from other mortgage lenders who have yet to report third-quarter results. 

Wells Fargo’s chief executive officer, Charlie Scharf, said in a statement that the bank is “closely monitoring risks” related to high inflation and increasing interest rates, as well as the broader geopolitical risks. “While we do expect to see continued increases in delinquencies and ultimately credit losses, the timing remains unclear.”   

Meanwhile, Jamie Dimon, JPMorgan Chase’s chairman and CEO, said in a statement that there are significant headwinds, such as stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine and the fragile state of oil supply and prices. 

“While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes,” he said.

A smaller stagecoach

Wells Fargo, the second-largest U.S. mortgage lender by volume, originated $21.5 billion in Q3 2022, down 37% quarter-over-quarter and 59% year-over-year. Refinancings fell to 16% of the portfolio, compared to 55% in the third quarter of 2021.

The correspondent channel, which the company is reportedly shrinking, was responsible for $9.1 billion of the total production in the third quarter of 2022, declining 46% year-over-year. The retail channel, with $12.4 billion in volume, fell 65% in the same period. 

Meanwhile, the bank’s revenues in the home lending business reached $973 million, increasing slightly from $972 million in the prior quarter but declining 52% in comparison with the same period of 2021. 

Wells Fargo’s mortgage banking noninterest income came in at $324 million in Q3 2022, an increase from $287 million in the previous quarter but a decrease from $1.2 billion in the same period of 2021. 

The bank’s mortgage servicing rights – carrying value (period-end)­– increased 7%, from $9.2 billion in Q2 2022 to $9.8 billion in Q3 2022. Compared with Q3 2021, it increased by 47%. The net servicing income rose 5% quarter-over-quarter to $81 million but was down 26% year-over-year. 

Mike Santomassimo, Wells Fargo’s chief financial officer, said to analysts that the mortgage banking income performance was better in the third quarter than forecasted due to higher spreads in August, but they “came back out in September.” “While I think there could be some downside there, it’s of a pretty low run-rate at this point,” he said. 

Overall, Wells Fargo made $3.5 billion in profit in the third quarter, compared to $5.1 billion in the same period of 2021, impacted by $2 billion in operating losses related to litigation, customer remediation and regulation matters, according to the company. (Mainly consent orders tied to its 2016 fake accounts scandal.) 

Santomassimo said the company is looking to create efficiencies. “We continue to find more opportunities across most parts of the company,” he said. 

Falling production at JP Morgan Chase

At JPMorgan, the fifth-biggest mortgage lender in the country, origination volume totaled just $12 billion between July to September, a decline of 45% compared to the prior quarter, and down 71% in comparison with the third quarter of 2021.

The bank experienced a more significant decline in its correspondent business, originating $4.3 billion in the third quarter of 2022, down 76% year-over-year and 61% quarter-over-quarter. Through its retail channel, origination volume reached $7.8 billion, a decrease of 67% year-over-year and 29% quarter-over-quarter.

According to the company, the performance was predominantly driven by lower production revenue due to lower margins and volume. In addition, the bank had lower net interest income due to tighter loan spreads, partially offset by higher net mortgage servicing revenue.    

JPMorgan’s home lending net revenue reached $920 million in the third quarter, down 8% compared to the prior quarter and 34% to the same quarter in 2021. 

JPMorgan’s servicing rights increased to $8.1 billion in the third quarter of 2022 from $5.3 billion in the third quarter of 2021. The net mortgage servicing revenues also improved: from an $18 million loss in Q3 2021 to a $220 million gain in Q3 2022.  

So far, according to JPMorgan Chase’s executives, the bank has not changed its underwriting standards due to the expectation of a challenging macroeconomic landscape. 

“In general, we underwrite through the cycle. We didn’t loosen our underwriting standards at the moment where everything looked great, and so don’t see any need to tighten,” Jeremy Barnum, chief financial officer, told analysts. 

The bank delivered $9.7 billion in net income in the third quarter, compared to $11.7 billion in the same period last year. 

Following the earnings report, Wells Fargo’s stock traded at $46.51 on Friday afternoon, up 2.7%. JPMorgan’s stock increased to $111.7, a 2.10% increase from the previous day.