JP Morgan Chase and Wells Fargo Hit By Record Low Mortgage Applications

Two of the nation’s largest mortgage lenders, JP Morgan Chase and Wells Fargo, released their quarterly earnings report last Friday.

Headline numbers? The income generated by both banks has been affected by record mortgage interest rates, record low levels of mortgage applications and current market volatility. Year over year, the value of new home loans is down nearly 60% for Wells Fargo and 67% for JP Morgan Chase.

  • JP Morgan Chase and Wells Fargo have seen significant reductions in their residential loan income in the third quarter of 2022.
  • These falls have been driven by record demand for new mortgages.
  • Demand for mortgages, in turn, has been dampened by record interest rates and current market volatility.

Mortgage earnings are down for both banks

Wells Fargo’s third quarter 2022 earnings report indicates mortgage applications are well down from last year. Wells Fargo originated $21.5 billion in residential first liens in the third quarter of 2022, a decrease of 36.1% from the second quarter of 2022 and a decrease of 58.6% from the third quarter of 2021. This has contributed to a 52% year-over-year decline in the bank’s residential loan revenue.

JP Morgan’s third quarter 2022 earnings report paints a similar bleak picture. Mortgage originations in the third quarter of 2022 totaled $15.2 billion. Compared to the previous quarter, this is a 45.5% drop in the value of new mortgages. Compared to the same quarter last year, profits fell even more, by 67%.

Although neither bank features in Investopedia’s roundup of the best mortgage lenders in 2022, their struggle to attract new mortgage customers is indicative of the market as a whole. Interest rates for new mortgages ended the quarter at the highest level since 2007 and have pushed weekly mortgage applications to a 25-year low, according to the Mortgage Bankers Association.

High interest rates and market volatility hit the mortgage market

The most immediate reason for the record demand for new mortgages is simply that interest rates are so high right now. Macroeconomic factors had kept mortgage interest rates historically low for much of this year, in particular as the Federal Reserve bought billions of dollars of bonds in response to economic pressures from the pandemic. However, record inflation in the last two quarters has caused the Federal Reserve to change course and raise the federal discount rate five times this year. These actions have pushed mortgage interest rates to 20-year highs in recent weeks.

However, there are other factors at play. As JPMorgan CEO Jamie Dimon pointed out, mortgage lenders face a number of challenges. “You have inflation, higher rates, higher mortgage rates, oil, volatility, [and] war,” he said, so a drop in residential loan revenue across the market is “pretty predictable.”

Despite the drop in mortgage applications, both banks stated that their overall financial position remains strong.


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