It suggests the first quarter of 2023 may have been the bottom of the current cycle and gives analysts something to chew on before the cavalcade of nonbanks – including Rocket Mortgage, United Wholesale Mortgage, Pennymac, Rithm Capital, and Mr. Cooper – report their earnings in the next six weeks. 

At Wells Fargo – which has strategically decided to exit the correspondent channel and reduce its servicing portfolio – mortgage originations reached $7.8 billion from April to June, down 77% year-over-year but up 18% from the prior quarter. 

The stagecoach’s correspondent channel was responsible for only $100 million of the total production in the second quarter of 2023, compared to $1 billion in the previous quarter.

Meanwhile, the retail channel, with $7.7 billion in volume from April to June, rose 38% compared to the previous quarter. It was also down 61% compared to the same quarter in 2022. 

Refinancings increased to 17% of Wells’ total portfolio in Q2 2023, compared to their recent lowest share of refi originations of 13% in Q4 2022. 

The bank’s mortgage servicing rights – carrying value (period-end)­– decreased by 6%, falling from $9.9 billion in the first quarter of 2023 to $9.3 billion in the second quarter. Compared with Q2 2022, servicing UPB decreased by 10%. The net servicing income declined 26% quarter-over-quarter to $62 million and was down 19% year-over-year.  

JPMorgan before and after the First Republic deal

Meanwhile, at JPMorgan, origination volume totaled $10.1 billion in Q2 2023, a 77.2% increase compared to $5.7 billion in Q1 2023 but less than half the $21.9 billion in Q2 2022. 

Federal regulators seized First Republic Bank in May and sold it to JPMorgan. The acquisition brought $1.1 billion in mortgage origination to JPMorgan, resulting in a total of $11.2 billion volume in the period, the bank said.  

And, including the First Republic figures, JPMorgan originated $7.3 billion in the second quarter of 2023 through the retail channel, up 103% quarter-over-quarter and down 34% year-over-year. 

Through its correspondent channel, origination volume reached $3.9 billion in Q2 2023, an increase of 86% quarter-over-quarter and a 64% decline year over year. 

In the mortgage space, First Republic focused virtually entirely on jumbo loans. The bank was the fourth-largest non-agency jumbo lender in America, per Inside Mortgage Finance. However, JPMorgan chairman and CEO Jamie Dimon told analysts after the acquisition that First Republic’s jumbo-centric mortgage program wouldn’t continue.

“The loans themselves are… really creditworthy and being marked. They’re obviously going to have a much higher return going forward. But we’re not going to be putting a lot of jumbo, cheap jumbo mortgage loans in our books. And we’ve already incorporated all of our numbers into potential runoff,” Dimon said. 

Regarding its servicing portfolio, JPMorgan’s mortgage servicing rights increased to $8.2 billion in Q2 2023 from $7.7 billion in Q1 2023 and $7.4 billion in Q2 2022. HousingWire reported that Rocket Mortgage sold JPMorgan Chase about $20 billion in MSRs in April. 

Mortgage servicing revenues at JPMorgan increased to $172 million in Q2 2023 from $148 million in Q1 2023. In Q2 2022, such revenues came in at $227 million. 

Mortgage earnings 

Wells Fargo recorded $847 million in revenues related to its home lending business in Q2 2023, a decrease from $863 million in the prior quarter (-2%) and $972 million in the same quarter in 2022 (-13%). That represents a better showing than in Q1 2023, when Wells Fargo’s annual revenue declined by nearly 40%.

The bank’s performance reflects “lower net interest income due to loan spread compression and a decline in mortgage banking income driven by lower originations,” Wells Fargo said in a news release.  

The bank’s mortgage banking noninterest income came in at $202 million in Q2 2023, a decrease from $232 million in the previous quarter and $287 million in the same period of 2022.

Meanwhile, JPMorgan Chase’s net revenue reached $1 billion in Q2 2023, up 40% from the prior quarter and up 1% year over year. 

However, the acquisition of First Republic brought in $235 million in mortgage net revenue, which means the net revenue only for JP Morgan’s operations was $772 million in the second quarter of 2023, up 7.2% quarter-over-quarter and down 23% year-over-year, “driven by lower net interest income from tighter loan spreads and lower servicing and production revenue,” according to a news release. 

Overall, Wells Fargo delivered a $4.9 billion profit in Q2 2023, compared to $3.1 billion in the same quarter of 2022. Overall revenues came in at $20.5 billion from April to June, up from $17 billion in the same period last year. 

Charlie Scharf, Wells Fargo’s CEO, said in a statement that the bank will continue to focus on controlling expenses and has taken some steps to protect its balance sheet from current turbulence.  

“We had a $949 million increase in the allowance for credit losses, primarily for commercial real estate office loans, as well as for higher credit card loan balances. While we haven’t seen significant losses in our office portfolio to-date, we are reserving for the weakness that we expect to play out in that market over time,” Scharf said. 

JPMorgan posted $14.5 billion net income in the second quarter (including First Republic), compared to $12.6 billion in the previous quarter and $8.6 billion in the same quarter of 2022.  

Dimon said in a statement that the U.S. economy continues to be resilient, but there are still salient risks in the immediate view. 

“Consumers are slowly using up their cash buffers, core inflation has been stubbornly high (increasing the risk that interest rates go higher, and stay higher for longer), quantitative tightening of this scale has never occurred, fiscal deficits are large, and the war in Ukraine continues,” Dimon said.