Bank earnings good sign for housing

NEW YORK – Earnings reports from two major banks Friday painted a picture of a healing housing market, with more Americans taking out mortgages, paying them on time and taking advantage of low interest rates to refinance.

At JPMorgan Chase, the biggest bank in the United States, income from new home loans set a record from January through March. The bank issued 6 percent more mortgages than a year ago and got 33 percent more applications.

Wells Fargo, which issues the most home loans, booked the most mortgage fees since 2009. It issued 54 percent more mortgages than a year ago and took 84 percent more applications.

A healthier housing market is welcome news. Housing has been the biggest drag on the economic recovery, while other segments, such as manufacturing and consumer spending, have held up or grown.

Home prices are still falling, though more slowly than in the past several years, and more than half a million American homes were in the foreclosure process at the end of March, according to RealtyTrac.

Still, stronger mortgage business helped JPMorgan and Wells Fargo beat Wall Street expectations for first-quarter earnings. JPMorgan CEO Jamie Dimon boasted that the bank had originated 200,000 mortgages in the quarter.

Two key factors helped:

• The average rate on the 30-year fixed mortgage dropped to 3.87 percent in February, the lowest since long-term mortgages began in the 1950s. Rates have stayed low: This week, the average is 3.88 percent.

• Job growth in January and February was some of the strongest since the Great Recession, and the unemployment rate has fallen to 8.2 percent, the lowest since January 2009.

At Wells Fargo, 15 percent of mortgage applications came from the government’s Home Affordable Refinance Program, which helps Americans who owe more than their property is worth get more affordable loans.

“It is great to see people who have made their payments every month even though they are underwater, or hugely underwater,” CEO John Stumpf said. “And now to be able to help them put a few hundred dollars extra in their pocket every month, that is terrific.”

Foreclosures are still holding the housing market back. A $25 billion settlement reached in February between the nation’s biggest mortgage lenders and state officials has paved the way for banks to take action on unpaid mortgages, many of which have been in a procedural limbo for months or years.

Those homes could be foreclosed on and end up back on the market. Foreclosures typically sell at a discount to other homes and can drag down the value of neighboring properties.

At a time when low interest rates have already reduced income for banks, banks must also assign one banker to each homeowner undergoing a loan modification and make sure every loan has double-checked documentation.

At JPMorgan, expenses related to mortgage production increased 35 percent for the quarter to $573 million. At Wells Fargo, total expenses rose 3 percent over the year before, mostly from higher commissions and bonuses for bankers in the mortgage unit and elsewhere.

Despite the increased costs, any growth is welcome at a time when other loans are growing at an even slower pace, said Christopher Mutascio, an analyst for the brokerage Stifel Nicolaus.