Moving on from the 2008 global financial crisis, the mortgage sector in the US is witnessing a comeback, boosting the profits of major banks, according to Thomson Reuters I/B/E/S.
Major lenders JPMorgan Chase and Wells Fargo are expected to register over US$4.5 billion (S$5.51 billion) in profits for Q3, up 15 percent from the same period last year.
The booming mortgage business is expected to offset a challenging environment, including lower lending profits due to low interest rates and lower earnings from investment banking.
Although lenders are making new mortgages, the home loan market is still under pressure. Banks have to process millions of foreclosures and all the current refinancing will translate to lower earnings from mortgage securities they chose to hold.
Nonetheless, fees generated from making mortgages will significantly increase the earnings of banks that remained in the mortgage business, such as US Bancorp, JPMorgan and Wells Fargo, unlike the banks that winded down their mortgage operations following the global financial crisis.
“They’re the ones that are going to be the winners,” said Paul Miller, an analyst at FBR Capital Markets, adding that “the refinance boom lasts four to five more quarters”.
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