The nation's largest mortgage lenders Wells Fargo (WFC) and JPMorgan Chase(JPM) originated more mortgages in the first quarter as each inch toward a cleaner portfolio.

Both banks beat earnings estimates during the quarter. Wells' mortgage originations totaled $129 billion in those three months, up from $84 billion last year. Chase's originations grew 6% over the same period to $38.4 billion in the first quarter.

Wells CEO John Stumpf said in a conference call with investors Friday the bank was seeing improvements in the housing market, specifically parts of Northern California, Texas and Washington, D.C.

"When you have the dynamics of higher rental rates and lower home values at great financing rates there's a point in time where the market will start to clear," Stumpf said. "We're getting very close to the tipping point."

Both have been steadily releasing the amount cash held in reserves for losses on mortgages written during the housing bubble.

Wells released $600 million from its allowance for credit losses to $19.1 billion in the first quarter. Chase reduced its loan-loss allowance to $25.8 billion from $29.7 billion one year ago, according to its financial release.

The delinquency and foreclosure ratio at Wells dropped to 6.89% in the first quarter, down from 7.2% last year.

Though not a side-by-side comparison, Chase said its 30-day delinquency rate ratio dropped to 5.32% from 6.22% last year.

Both banks are also making some progress through the reams of repurchase demand from Fannie Mae and Freddie Mac.

Wells trimmed its outstanding agency repurchase requests to $1.86 billion in the first quarter from roughly $2.5 billion last year and $4.3 billion at the peak in 2010.

Repurchase losses at Chase were $302 million in the first quarter, compared with repurchase losses of $420 million one year before. It held $3.2 billion in reserves during the first quarter, roughly the same level as last year.

Wells is even making slow but steady progress through its Pick-A-Pay mortgage portfolio inherited from Wachovia. It trimmed this book down to roughly $64 billion in the first quarter from $71.5 billion last year and $95.3 billion at the end of 2008.

Still, both companies are hemorrhaging money because of litigation. In the first quarter, Wells reported $314 million in higher operating costs due to litigation expenses. Chase said it held a litigation expense of $2.7 billion in the first quarter, more than double the amount from the year-ago quarter.

J.T. Smith, chief investment officer at boutique investment bank Aristar Funding Corp., said redefault rates will prove the movement of some loans out of nonperforming status and through modification transitory at best. Also, Smith noted the majority of originations are from Federal Housing Administration approvals, and with higher insurance premiums and new rules coming into place, the pipeline could tighten.

"That being said, Wells Fargo picked up a lot of retail channels on the East Coast through the Wachovia purchase, as did Chase on the West Coast with WaMu and Bear Stearns so they do have theirselves well situated for increased market share," Smith said.

Origination numbers were also boosted by Home Affordable Refinancing Program volume (which was 15% of originations at Wells during the first quarter) and declining market shares at Ally Financial and most notably Bank of America (BAC).

Stumpf said the biggest driver of losses is jobs. His bank and its network of community financial institutions is busy gathering market share both through HARP and traditional home loans.

"I can't see how you can be in the consumer banking business and not be in the mortgage business," Stumpf said. "Right now the mortgage business is very good for us."

jprior@housingwire.com

@JonAPrior