The four largest U.S. lenders—Wells Fargo & Co. (NYSE: WFC), JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), and U.S. Bancorp (NYSE: USB)—collectively posted about $24.4 billion in revenue from home loans over 2012, with expenses exceeding $21.7 billion for loan repurchasing and settlements.
Clearly, riding on Federal Reserve help and that of the government, mortgage revenue from these leading lenders is once again greater than the costs of bad home loans and foreclosures.
Homeowners have also been exploiting the historically low borrowing costs right now as the Fed keeps interest rates near zero and the White House aggressively pursues refinance-help programs.
“They’ve come out from the self-inflicted gunshot wound to the head and are now starting to recover due to a government- induced set of policies and programs,” said Clifford Rossi, a former risk manager and managing director at Citigroup (C) Inc. who’s now at the University of Maryland’s Robert H. Smith School of Business. Policies intended to assist homeowners serve “to help the banking segment significantly,” he said.
Over 2012, banks generally stood to earn in record numbers from mortgages. Last week, mortgage rates were 3.4 percent against 4.74 percent some two years back.
Altogether, bad loans and mortgages have cost these banks more than $84 billion since 2007, per Bloomberg’s data. And as costs spiraled out of control and people began taking notice, these four incurred an additional $16 billion in costs in the second half of that period.
Thus far, Wells Fargo has performed better than the rest; it was responsible for one in three mortgages as of last September., with a 24 percent rise in Q4 profits.
In the fourth quarter, profits rose 24 percent and net gains amounted to $2.8 billion. Wells Fargo saw $11.6 billion in income from mortgages alone last year.
There is clear evidence that the housing market is on the upswing again. Zillow notes that home values have gone up by more than $1.3 trillion since 2011, and those figures are expected to go up further.
Over 2012, 4.65 million homes were purchased—the most since 2007.
The trend will almost certainly continue for a while.