Mortgages surprisingly sturdy with early financial institution earnings: KBW

Mortgage origins appear to be falling slightly on average as the refinancing boom is a long time coming. However, bank profits reported on Friday suggest they have been surprisingly resilient overall, according to a report from Keefe, Bruyette & Woods.

"Mortgage banking results for several major banks have generally been better than expected," said Bose George, Thomas McJoynt-Griffith and Michael Smith, analysts at Keefe, Bruyette & Woods, in the report.

Previous forecasts by Fannie Mae and the Mortgage Bankers Association predicted that origination volume would decrease 7% in the fourth quarter compared to the previous quarter, but early earnings figures from Wells Fargo, JPMorgan Chase, Citi and PNC Bank show they are only on average decreased by 3% when purchased credits were excluded, according to KBW.

Additionally, analysts were surprised to find that mortgage rights marks rose an average of 9% as interest rates stayed at or near record lows during the quarter, which should maintain some valuation pressure.

"The prices for MSR could improve, since the market risks (eg with regard to forbearance) have decreased", so the KBW analysts.

Origination margins, on average, were in line with analysts' expectations that they will continue to be slightly compressed.

However, within these metrics there was of course some variation by company. What follows are some details regarding performance in the fourth quarter of 20 that illustrate more broader challenges and opportunities emerging in the mortgage business.

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