April 12 (Bloomberg) -- Slack demand for home loans continued to drag on earnings at Wells Fargo & Co. and JPMorgan Chase & Co. as the two largest U.S. mortgage lenders grappled for pieces of a shrunken market.
Even as interest rates hovered near historically low levels, new home loans tumbled 67 percent to $36 billion in the first quarter at San Francisco-based Wells Fargo, the biggest originator. JPMorgan posted a 68 percent drop to $17 billion, and the bank predicted it would lose money on mortgage production for the full year.
Both lenders are paring staff to keep expenses in line with demand for loans, which has waned as investors and cash buyers dominate some sales. New York-based JPMorgan said jobs at its mortgage business declined 14,000, or 30 percent, since the start of last year. Wells Fargo set plans to cut 1,100 positions in the most recent three months, which ranked as its worst first quarter for mortgage revenue since 2008.
“The market got off to a slow start,” JPMorgan Chief Financial Officer Marianne Lake said yesterday on a conference call with analysts to discuss quarterly results. “We’re seeing tight housing inventory in some markets, and the purchase market was affected adversely by the severe weather.”
JPMorgan’s first-quarter net income dropped 19 percent to $5.27 billion, or $1.28 a share, the bank said in a statement. Mortgage revenue plunged 42 percent to $1.57 billion as higher interest rates curtailed refinancing.
Mortgage banking income, which includes originations and servicing, fell 46 percent to $1.51 billion at Wells Fargo. The bank still posted a 14 percent increase in first-quarter earnings, to $5.89 billion, as fewer customers missed payments.
“We view JPM and WFC’s mortgage banking results as lower than expected,” Keefe, Bruyette & Woods analysts led by Frederick Cannon said yesterday in a research note, referring to the banks’ stock symbols. “Mortgage volumes and applications were down materially.”
Wells Fargo ceded market share in 2013 to rivals, dropping to 19 percent of residential mortgage originations from 25 percent, according to data from Bloomberg Industries. JPMorgan rose to 9.5 percent from 9 percent, while Bank of America Corp. advanced to 4.8 percent from 3.7 percent.
Potential customers are finding they’re sometimes bidding for homes against buyers who don’t need debt. All-cash sales made up 35 percent of sales in February and 33 percent in January, according to data from the National Association of Realtors.
“There’s frankly a lot more cash buyers today,” Wells Fargo Chief Executive Officer John Stumpf, 60, said during a conference call with analysts to discuss results. Wells Fargo is optimistic about prospects for the rest of this year because rates are still low, homes are affordable, consumer debt is dropping and employment is rising, the bank told analysts.
Wells Fargo’s results show the shift in the housing market away from refinancings as interest rates rose from last year’s trough. Just 34 percent of its originations went to customers refinancing loans, compared with 69 percent in the same period of 2013. The average interest rate for a 30-year fixed mortgage was 4.34 percent this week, up from 3.54 percent a year ago, according to a statement from Freddie Mac.
JPMorgan fell 3.7 percent to $55.30 yesterday in New York trading, the worst performance in the Dow Jones Industrial Average. Wells Fargo gained 0.8 percent to $48.08.
--With assistance from Dakin Campbell and Hugh Son in New York and Kathleen M. Howley in Boston.