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Analysts Anticipate Drop in Mortgage Banking Profits

As major lenders start releasing their second-quarter earnings reports, ""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp anticipates future filings will show the impact of higher interest rates on banks' mortgage earnings.

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The ""Mortgage Bankers Association's"":http://mbaa.org/default.htm (MBA) latest report shows the 30-year fixed average climbing to 4.68 percent, the ninth consecutive weekly increase and the highest rate in nearly two years. Meanwhile, Freddie Mac's Primary Mortgage Market Survey for the following week [COLUMN_BREAK]

shows the 30-year fixed average reaching 4.51 percent, nearly a full percentage point higher than the same week last year.

With the refinance boom petering out and new purchase loans taking over, Fitch says mortgage volume will take a hit, putting a dent in the earnings of banks that have a major presence in the market.

""For some banks, mortgage banking has accounted for as much as 20 percent of non-interest income and nearly 8 to 10 percent of net revenue,"" the ratings agency said. ""A mortgage banking decline of as much as 50 percent due to higher interest rates and refinancing burnout could represent a 4 percent revenue decline for regional banks, a significant drop that we believe would need to be offset to keep revenue at least level.""

Some banks have already seen volume dip as refinances dwindle. ""JPMorgan"":https://themreport.com/articles/wells-fargo-reports-increase-in-originations-as-jpmorgan-sees-decline-2013-07-12 and ""Citigroup"":https://themreport.com/articles/earnings-rise-as-citi-mortgage-profits-fall-2013-07-15 both reported a decline in mortgage origination revenues in Q2, though Wells Fargo posted an increase.

According to MBA, purchase originations are forecast at $597 billion for this year, while refinances are anticipated to reach $835 billion. Total originations are expected to drop 26.5 percent in 2014 to $1.053 trillion.

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