Banks feel the squeeze as mortgage profits dwindle

February 22, 2013 01:00PM

The record mortgage profits reported by big lenders like  Wells Fargo and JPMorgan Chase are drying up, as increased competition hold rates near all time lows. Profits made from mortgage backed securities are being undercut by falling bond prices, decreasing profits by as much as 40 percent from last quarter, according to Compass Point Research and Trading estimates cited by Bloomberg News.

Last year the four largest banks reported more than $24 billion of revenue from mortgage originations. But with the pool of borrowers shrinking, mortgage firms have narrowed their margins and bond prices have fallen since the announcement the Federal Reserve will discontinue its policy of buying $40 billion dollars of debt per month.

“Gain-on-sale margins are definitely getting squeezed,” Rob Hirt, CEO of Walnut Creek, California-based RPM Mortgage, whose margins are down around 10 percent to 15 percent.

“It can depend on the type of mortgage company you are,” Hirt added, differentiating between mortgage lenders that loan directly to consumers, compared to firms that loan through brokers or correspondents. [Bloomberg] —Christopher Cameron