Origination volume starts climbing again
After riding a historic refinance wave in 2002, Bank of America entered 2003 with a mortgage business that was still busy but clearly past its peak.
The bank’s 2002 annual report shows first-mortgage originations of $88.1 billion, with total consumer real estate originations — including seconds and home-equity lines — topping $100 billion for the year. That refi-driven base meant even a modest uptick in early-2003 applications translated into sizeable production, prompting Mortgage Daily’s assessment that volume at BoA had “edged up” from late-2002 levels.
For a retail-heavy franchise like Bank of America, the improvement suggested that low rates and strong marketing were still drawing borrowers, even as some of the most rate-sensitive refinance demand had already washed through the system.
Servicing portfolio and MSRs under pressure
While new production was firming, the servicing side of the house was moving the other way.
Bank of America reported that the average portfolio of first mortgages serviced fell by roughly $28.4 billion to $283.0 billion in 2002, as waves of refinancing caused loans to prepay and roll off the books. At the same time, mortgage banking assets — largely mortgage servicing rights (MSRs) — dropped by about 46% year-on-year, with management explicitly blaming higher prepayments in the low-rate environment.
Regulatory filings in 2003 continued that story, noting that mortgage banking assets had declined further as lower rates and rapid payoffs eroded the value of existing servicing.
In other words, BoA was writing plenty of new loans, but the stock of loans it serviced was shrinking, and the rights tied to that servicing were worth less. The headline practically wrote itself: production up, servicing slides.
What the split says about the market
For MortgageDaily readers at the time, the Bank of America numbers captured three key dynamics in early 2003:
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The refinance boom was still feeding originations, even as the most extreme volumes of 2002 faded.
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Heavy prepayments were chewing through servicing portfolios, pushing down MSR balances and related income.
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Big banks could show solid production growth on the front end, while feeling real pressure on the back end of the mortgage business.
That combination made Bank of America a useful bellwether: a lender large enough to benefit from a still-strong origination market, yet exposed enough to servicing to feel the pain of every extra basis point of prepayment.
