As the largest banks reported quarterly results this month, they took charges for repurchasing soured loans, complying with federal mortgage servicing standards, paying for an upcoming settlement with state attorneys general and resolving significant foreclosure and litigation costs.
The mortgage woes at big banks have been so dire for so long that Jamie Dimon's comment this month that JPMorgan Chase & Co. was "getting killed in mortgages" became a footnote rather than the main story.
Even Wells Fargo & Co., which posted the strongest fourth-quarter mortgage results and now controls a third of the U.S. mortgage market, had significant costs for loan repurchases and mortgage servicing failures. It posted about $300 million in costs related to mortgage servicing and foreclosures.
The worst problem, analysts say, is that the banks' fourth-quarter charges do not necessarily signal any sort of resolution to the litigation and regulatory risk for banks with significant mortgage exposure.
"The optimistic view is these are one-time charges and they will be over and done with," says Brian Foran, an analyst at Nomura Securities. "But some of the charges are not big enough to cover everything."
Foran singled out U.S. Bancorp and PNC Financial Services Group Inc., which both took charges in the quarter related to the pending settlement agreement with state attorneys general and to the cost of complying with federal consent orders for past mortgage servicing failures.
US Bank took a $130 million charge for the settlement and $34 million for servicing compliance; PNC disclosed a total of $240 million in expenses for both, including foreclosure costs.
But those expenses might not be enough to cover the banks' exposure from the settlement, which has been negotiated for months. Foran cites some concern that banks will have to "dig deeper" by giving borrowers principal reductions beyond the upfront costs of a settlement. Because banks cannot talk in detail about the settlement before it is finalized and announced, they have not been able to explain what the payouts would actually cover, he says.
Though mortgage banking profits are up and origination volume increased for some banks in the fourth quarter, mortgage loan growth has fallen from a year ago. Bank of America Corp.'s pullback in correspondent lending continues to remake the overall mortgage landscape as banks try to bolster their capital levels.
At B of A, mortgage origination volume dropped 77% from a year ago to just $18 billion at Dec. 31, a dramatic retreat. Though Wells Fargo appears to be the main beneficiary of B of A's withdrawal from mortgages, the San Francisco bank had a 6.2% decline from a year earlier in fourth-quarter mortgage originations, to $120 billion.
JPMorgan Chase's mortgage origination volume dropped 24% from a year earlier to $38.6 billion, while Citigroup Inc.'s fell 3% to $21 billion from a year ago.
Banks saw some signs of life in consumer and especially corporate lending, but analysts were still largely unimpressed.
