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Quarterly residential mortgage production by lender. Subprime, Alt-A, home equity and conforming originations. Volume by quarter since 2003.

Chase Mortgage Originations Down, Outlook Challenged

Q2 production off 7% from Q1

July 12, 2013

By Mortgage Daily staff

Although new loan applications increased during the latest quarter at JPMorgan Chase & Co., actual loan closings slowed and the company warned about the potential impact of sustained higher interest rates on its mortgage earnings.

Total mortgage production at the financial services giant, including home-equity originations, was $49.5 billion from the beginning of April through the end of June, according to second-quarter earnings data released Friday.

Business slowed from the first quarter, when $53.1 billion in home loans were funded.

But Chase closed more loans during the latest period than the $44.3 billion closed in the second-quarter 2012.

Home-equity loans accounted for $0.499 billion of second-quarter production, up from $0.402 billion in the previous quarter and $0.360 billion in the same three months during the previous year.

The non-HEL portion was $49.0 billion, down from $52.7 billion in the first quarter. But non-HEL activity was up from the same quarter in 2012, when $43.9 billion was funded.

Retail non-HEL originations fell to $23.3 billion from $26.2 billion, while wholesale volume was unchanged at $0.1 billion and correspondent activity slipped to $23.6 billion from $24.0 billion. Negotiated transactions were $2.0 billion, off from the first quarter's $2.4 billion.

Chase noted that even though overall originations were up just 12 percent on a year-over-year basis, purchase originations have jumped by half.

Third-quarter mortgage originations could be stronger given an increase in new loan applications received by Chase, which rose to $65.0 billion from the $60.5 billion in the first quarter.

Chase managed a third-party mortgage servicing portfolio of $832.0 billion as of June 30. The portfolio has lightened from $849.2 billion at the end of March and $860.0 billion at the same point last year.

Mortgage assets ended last month at $171.357 billion. Mortgage investments have been reduced from $173.839 billion three months earlier and $187.101 billion a year earlier.

The June 30 total included $82.318 billion in HELs, $76.299 billion in prime mortgages and $12.151 billion in subprime mortgages.

Excluding purchased credit-impaired loans, the 30-day delinquency rate was 4.17 percent. Late payments tumbled from 4.61 percent as of the end of the first quarter and 5.16 percent as of the same date in 2012.

On the PCI loans, the 30-day delinquency rate fell to 17.92 percent from 19.26 percent and was 21.38 percent as of the second-quarter 2012.

Chase has reduced its repurchase liability each of the past four quarters. After receiving $1.146 billion in second-quarter repurchase demands -- of which nearly half were for 2007 vintage loans -- June ended with $2.476 billion in repurchase liability.

"Realized repurchase losses may be offset by reserve reductions based on current trends," Chase said in its earnings presentation.

Prior to income tax expense, the mortgage banking business earned $1.881 billion. Chase lifted income from $1.110 billion in the first quarter.

Mortgage income, however, was lower compared to $2.178 billion in the second quarter 2012.

The company warned about the impact of higher interest rates on its mortgage business.

"If primary mortgage rates remain at or above current levels, refinance volumes and margins will be under pressure and mortgage production profitability will be challenged," the earnings presentation stated.

Second-quarter 2013 net reflected $0.582 billion in production income, $0.133 billion in servicing income and $1.166 billion in profits from real estate portfolios.

A pre-tax benefit of $0.950 billion resulted from a reduction in loan loss reserves for Chase's real estate portfolios.

The New York-based holding company earned $9.3 billion before income tax expense during the most recent period. Earnings grew from the first quarter's $9.1 billion and $7.0 billion during the same period last year.

Within the consumer community banking segment, headcount fell to 157,886 in the second quarter from 161,123 three months earlier and 167,480 a year earlier.

Branch count in community banking inched up to 5,657 from 5,632 at the end of March.

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