Morning Report: Jamie Dimon throws cold water on mortgage banking

Vital Statistics:

 

Last Change
S&P futures 2898.75 -1.5
Eurostoxx index 390.41 0.82
Oil (WTI) 63.91 0.15
10 year government bond yield 2.56%
30 year fixed rate mortgage 4.32%

 

Stocks are lower as we await the Mueller report. Bonds and MBS are up on weak European data.

 

Initial Jobless claims fell to 192,000, yet another sub-200,000 print.

 

Retail sales came in better than expected, rising 1.6% MOM, ahead of the 0.9% Street expectation. Ex autos, they rose 1.2% and ex autos and gas, they rose 0.9%. The economy may well be re-accelerating as we finish the first quarter and enter the second.

 

Special Counsel Robert Mueller will hold a press conference this morning and release a redacted version of the report to Congress before noon. At this point, everyone’s mind is already made up, so this is just a formality. I don’t expect this to be market moving.

 

Bonds will close early today and the markets will be closed tomorrow in observance of Good Friday.

 

Jamie Dimon sounded pessimistic on the mortgage business and blamed regulators during the JP Morgan earnings call.:

“In the early 2000s, bad mortgage laws helped create the Great Recession of 2008. Today, bad mortgage rules are hindering the healthy growth of the U.S. economy. Because there are so many regulators involved in crafting the new rules, coupled with political intervention that isn’t always helpful, it is hard to achieve the much-needed mortgage reform. This has become a critical issue and one reason why banks have been moving away from significant parts of the mortgage business.”

Because of post-crisis capital rules, “owning mortgages becomes hugely unprofitable,” Dimon lamented later in his note. On a call with analysts, he called mortgage servicing – the bookkeeping for regular customer payments – hard. “You got to look at that and ask a lot of questions about whether banks should even be in it,” Dimon said.

If not banks, then, who should be “in it”? “Non-banks are becoming competitors,” Dimon told analysts.

FWIW, Wells Fargo was a bit more constructive on the mortgage banking business, but since they are currently in Elizabeth Warren’s doghouse, it probably makes more sense for them to not poke the bear.

 

Independent mortgage banks and subsidiaries of chartered banks made an average profit of $367 per loan in 2018, down from the $711 they made in 2917, according to the MBA. “Despite a healthy economy in 2018, the mortgage market suffered, as rate hikes hurt refinancing volume and low housing inventories priced some potential homebuyers out of the purchase market,” said Marina Walsh, MBA Vice President of Industry Analysis. “For mortgage companies, there was the perfect storm of lower production revenues combined with rising expenses, which together contributed to the lowest net production income per loan since 2008.” Expenses rose to a study high of $8,278 per loan. Servicing helped pull some firms into the black, as those that retain servicing were more profitable than those that did not. That said, there is probably a size bias at work there as well.

 

Herman Cain might not have the votes in the Senate to get confirmed to the Fed.

Advertisements

Author: Brent Nyitray

Why do you need new bands? Everyone knows rock attained perfection in 1974. It's a scientific fact. - Homer Simpson

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s