While the majority of Wells Fargo's mortgage volume remains in the purchase market, the nation's largest mortgage originator and servicer experienced a 14% shift toward refinancings during the fourth quarter.
About 60% of the $44 billion in mortgage volume originated during the fourth quarter were for purchase transactions. That's down from a 70% share of purchase loans during the third quarter, when it originated $48 billion, the company said in its fourth-quarter earnings, released Wednesday. Wells originated $50 billion in mortgages in the fourth quarter of 2013, with purchase transactions accounting for 68% of volume.
Mortgage banking contributed $1.52 billion of noninterest income to Wells Fargo, down from $1.57 billion in the fourth quarter last year. Originations contributed $830 million to the total for the most recent period, while servicing added $685 million. Wells Fargo has a servicing portfolio of $1.8 billion.
It had net income of $5.71 billion in the fourth quarter, slightly below the $5.73 billion it earned in the third quarter, but up from $5.6 billion in the fourth quarter of 2013.
Meanwhile, JPMorgan Chase said its mortgage banking business had net income of $338 million for the fourth quarter, down from $593 million during the same period in 2013, driven by a higher provision for credit losses and lower net revenue. But it was largely offset by lower noninterest expense.
JPMorgan Chase had total net earnings for the quarter of $4.9 billion, compared with $5.3 billion for the same period last year, the company said in fourth-quarter results released Wednesday. A decline in mortgage fee income was a main contributor to a 10% year-over-year decline in noninterest income at JPMorgan Chase, while lower mortgage banking expenses reduced noninterest expenses at the holding company by 12%.
During a call with investors, JPMorgan Chairman and CEO Jamie Dimon was asked about the bank's growing origination market share and expanding correspondent lending business, particularly in light of his previous statements regarding a pullback from originating Federal Housing Administration-insured loans.
"I think they are two different issues. One is the correspondent business properly done is fine and obviously we do look at their credit underwriting because we've had a backup over the last five or 10 years. Correspondents are no longer in business and if they did a bad job, we had to pay for that," Dimon responded.
As for FHA, the company reduced its share of those loans for two reasons, he continued.
"One is the ongoing liability in the production side where the insurance was worthless over time and the second is just the cost of servicing FHA loans when they go into default and they have a much higher chance of going into default than not. So those are two reasons to do less. And maybe that will change over time," Dimon said.
The correspondent channel accounted for $15.3 billion, or 67%, of the $23 billion in mortgages originated during the fourth quarter. A year ago, the correspondent channel accounted for 58% of Chase's $23.3 billion in total originations.
Pretax income from loan originations was $204 million, compared with a loss of $268 million one year ago, with the shift to profitability due to lower expenses.
The company's servicing portfolio at year-end was $751.5 billion, which is 2% from the third quarter and down 8% from Dec. 31, 2013.
JPMorgan made pretax income of $23 million on its servicing portfolio, compared with $11 million for the fourth quarter of 2013. The change reflects lower expenses, but this was predominantly offset by lower revenue and lower MSR risk management income.