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How Home Lending Impacted the Big Banks

Financial institutions have seen a subdued fourth quarter thanks to the waning effect of the tax cuts and continued volatility in the share market. This was reflected in the below-expectations results posted by two big banksJPMorgan Chase and Wells Fargo.

One of the factors that impacted their earnings was a drop in fees from mortgage banking. While the fees from mortgage banking fell by half from a year ago, JPMorgan also reported a nearly 50 percent decline in the fourth quarter in mortgage banking fees, according to Bloomberg.

Wells Fargo Looks to the Future

Despite a decline in loan balances, Wells Fargo recorded a net income of $6.1 billion in Q42018, which was slightly below $6.2 billion recorded during the same period last year. While its net interest income increased $331 million to $12.6 billion, its noninterest income declined $1.4 billion to $8.3 billion.

The bank's mortgage banking income declined to $467 million, from $846 million in Q32018. Its net mortgage servicing income also decreased to $109 million, from $390 million in the third quarter "predominantly due to updated mortgage servicing rights valuation assumptions driven by recent market observations."

The bank said that its production margin on residential held-for-sale mortgage loan originations decreased to 0.89 percent, from 0.97 percent on a quarter-over-quarter basis, due to lower retail margins, However, the decline was partially offset by a lower percentage of correspondent volume. Residential mortgage loan originations in the fourth quarter were $38 billion, down from $46 billion in the third quarter primarily due to seasonality, the bank said.

Despite these declines, the bank made "meaningful improvements in how we manage risk across the company, particularly operational and compliance risk," said Tim Sloan, CEO, Wells Fargo. "Our focus on delivering long-term shareholder value included meeting our 2018 expense target and returning a record $25.8 billion to shareholders in 2018, up 78 percent from 2017."

JPMorgan's Net Income Increases

JPMorgan Chase announced a net income of $7.1 billion in the fourth quarter, a rise of 67 percent compared to $2.8 billion recorded during the same period last year. Its net revenue rose 4 percent to $26.8 billion while the bank's net interest income rose 9 percent to $14.5 billion driven by "the impact of higher rates and growth in loans."

"Each line of business grew revenue and net income for the year while continuing to make significant investments in products, people and technology, demonstrating the power of the platform," said Jamie Dimon, Chairman and CEO of JPMorgan Chase. We grew core loans 7 percent, in line with our expectations while maintaining credit discipline and a fortress balance sheet with significant capital and liquidity."

Despite overall growth in loans, JPMorgan reported an 8 percent decline in its home lending revenue which stood at $1.3 billion in Q42018. The decrease was driven by lower net production revenue on margin compression as well as lower volumes, the bank said in its earnings statement.

About Author: Radhika Ojha

Radhika Ojha is an independent writer and editor. A former Online Editor and currently a reporter for MReport, she is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Houston, Texas.
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