The Psychology Behind the Recovery

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Th e M Rep o RT | 43 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION LocaL Edition mortgage-backed securities (MBS)—including a landmark $13 billion deal with the govern- ment. The fourth quarter's results included a non-MBS settlement related to the bank's failure to intervene in Bernard Madoff's infamous Ponzi scheme that cost investors billions of dollars. "We are pleased to have made progress on our control, regula- tory, and litigation agendas and to have put some significant is- sues behind us this quarter," said Jamie Dimon, JPMorgan's chair- man and CEO. "It was in the best interests of our company and shareholders for us to accept responsibility, resolve these is- sues, and move forward." Mortgage banking net income was $562 million, an increase of 34 percent over the prior year, "driven by lower noninterest expense and provision for credit losses, predominantly offset by lower net revenue," the bank reported. Originations totaled $23.3 bil- lion, down 54 percent from the year-ago quarter and 42 percent from Q 3. Purchase originations made up $13 billion of that, re- flecting the ongoing dwindling in refinances. Application volumes were $31.3 billion, down 52 per- cent from the prior year and 23 percent from the prior quarter. A lower provision for credit losses provided a benefit of $782 million, reflecting a $950 million reduction in loan loss allowances as a result of the improving housing market. Meanwhile, Wells Fargo reported fourth-quarter profits of $5.6 billion, a 10 percent im- provement over the same quarter last year. For all of 2013, the bank pulled in $21.9 billion, up 16 percent year-over-year. "The fourth quarter of 2013 was very strong for Wells Fargo, with record earnings, solid growth in loans, deposits and capital, and strong credit quality," commented CFO Tim Sloan, who noted growth in net interest and noninterest income, "despite a challenging rate envi- ronment and the expected de- cline in mortgage originations." Mortgage banking income at the nation's biggest home lender was $1.6 billion, down $38 million quarter-over-quarter. The quarterly loss was driven in large part by a decline in mortgage originations, which totaled $50 billion compared to Q 3's $80 billion. Mortgage applications at Wells Fargo came to $65 billion in the fourth quarter, down from $87 billion in the previous report— once again reflecting consumers' waning interest as interest rates climb ever upward. Pause on 2014 Predictions OriginatiOn vOlume nOt tO be as high as initially expected. washington, d.c. // Citing declines in application activity and increases in interest rates, the Mortgage Bankers Association (MBA) is lowering its forecast for origination volumes in 2014, the group announced. Overall, MBA predicts mort- gage originations will come to $1.12 trillion for the year. That es- timate is down $57 billion from the last forecast. "Despite an economic outlook of steady growth and a recovering job market, mortgage applications have been decreasing—likely due to a combination of rising rates and regulatory implementation, specifically the new Qualified Mortgage rule," said MBA chief economist Mike Fratantoni. Purchase originations are projected at $677 billion for the coming year, down from the original forecast of $711 billion but still a 3.8 percent increase compared to 2013. Refinance estimates were also revised lower and are now expect- ed to be $440 billion compared to the previous prediction of $463 bil- lion. The updated total is around 60 percent lower than last year's refinance volume, MBA says. Quarterly Profits rise at Bofa despite the struggling hOme price numbers, the bank is rebOunding. north carolina // Bank of America recorded a respect- able profit in last year's fourth quarter, due in part to recover- ing—albeit still struggling—real estate figures. BofA took in $3.4 billion in profits last quarter, beating out Q 3's $2.5 billion net income and last year's $732 million. For the entire year, the bank's net income totaled $11.4 billion, rising from $4.2 billion in 2012. "We enter this year with one of the strongest balance sheets in our history," said CFO Bruce Thompson, pointing to low credit losses and cost-cutting efforts as contributors to the quarterly increase. Putting a drag on Q 4's profits was an estimated legal expense of $2.3 billion, which reflected ongoing exposures related to dis- putes over bad residential mort- gage-backed securities—many of which stemmed from the bank's acquisition of Countrywide Financial in 2008. That expense was offset by a reduced loss in BofA's Consumer Real Estate Services segment, which lost $1.1 billion compared to the prior year's $3.7 billion loss (at- tributable in part to a repurchase settlement with Fannie Mae). The division funded $13.5 billion in mortgages and home equity loans through Q 4, with approxi- mately 68 percent of first mortgag- es coming from refinances and 32 percent made for home purchases. Overall, first-mortgage originations were down 46 percent year-over- year, "reflecting a corresponding decline in the overall market demand for mortgages." For all of 2013, BofA estimates it funded nearly $90 billion in residential and home equity loans. Revenue received a boost from a reduction in credit loss provi- sions, which were down to $336 million from nearly $2.2 billion last year. MBA is lowering its forecast for origination volumes in 2014.

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