The two main issues making life difficult for lending execs: Competition has intensified, and America’s appetite for home buying has disappeared.
JPMorgan execs highlighted the headwinds facing the business on Tuesday in a presentation to investors, sharing a slide that explains just how difficult the economics have gotten in mortgage lending.
The bar chart above shows declining demand for mortgages, particularly in refinancings but also in traditional home loans.
That trend has intensified in recent months, with home sales cratering amid rising mortgage rates and soaring home prices. Existing-home sales, which steadily declined in the back half of 2018, fell again in January to a three-year low.
The line chart lays out the other side of the mortgage-lending double whammy: The spreads lenders are earning from mortgages are declining at the same time that costs to produce mortgages are increasing.
That’s a bad recipe for profitability.
As Michael Weinbach, the CEO of JPMorgan’s mortgage-banking business, told investors, this dynamic is in part a result of increased competition — smaller non-bank lenders have entered the fray and claimed market share in recent years, while “digitalization has contributed to excess capacity across the industry.”
“This has pressured spreads and margins while the cost to originate loans continues to increase as the industry absorbs the impact of new regulations,” Weinbach said in his presentation.
Weinbach blames regulations for increasing costs, and while additional compliance costs play a role, the Mortgage Bankers Association said last year that other expenses — commissions, compensation, technology, and equipment — have been on the rise, as well.
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