As homeowners rush to take advantage of lower rates, mortgage refinance applications have jumped 122% from a year ago, propping up earnings for US regional banks.
Some banks, including US Bancorp, RBC Capital Markets and Morgan Stanley, have raised their earnings estimates following the earnings report, citing revenue growth from mortgages and fees.
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Mortgage applications increased 4.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 17, 2020.
At the same time, purchase activity increased again last week to 19% compared to last year—the ninth straight week of year-over-year increases.
The refinance share of mortgage activity increased to 64.8% of total applications from 64.2% the previous week.
Big banks compared with regional banks
Major banks, including Citigroup, JPMorgan and Morgan Stanley relied on their trading units to rake in stronger second-quarter results than expected. The trading business has traditionally performed best during volatile markets, giving big banks a much-needed boost in uncertain times.
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By GlobalDataSmaller national and regional banks have had to rely on mortgages and fees to save the day.
“Taking into the account the current economic situation and how much rates have fallen, MBA is nearly doubling its 2020 refinance originations forecast to $1.2 trillion, a 37% increase from 2019 and the strongest refinance volume since 2012,” said Joel Kan, an MBA economist.
Potential homebuyers are clearly weighing the very low interest rates against their concerns over the coronavirus’ effect on the overall economy and employment. They are also facing a record low supply of homes for sale.
An exceptional quarter?
“As lenders handle the wave in applications and manage capacity, mortgage rates will likely stabilise but remain low for now. This in turn will support borrowers looking to refinance or purchase a home this spring,” Kan said.
Citizens Bank CEO Bruce Van Saun said:
“We took the view that the second quarter was so strong, such a gangbusters quarter, that it’s unlikely to repeat as we remove some of the seasonal factors in the second half of the year, but we still think it’s going to be pretty darn good.”
