Interest rates on fixed 30-year mortgages rose to an average 4.68 per cent in the first week of the month - the ninth consecutive increase and the highest in almost two years. This is having an impact on the number of people taking out mortgages and Fitch believe volumes will continue to fall. The agency explained that borrowers have either already refinanced their homes or are unable to do so because of depressed housing values. While this is partially offset by rising home prices, there are severe implications for the mortgage market.
Some US banks gain as much as 20 per cent of non-interest income from mortgage banking, not to mention nearly eight-to-ten per cent of net revenue. Should higher interest rates and refinancing burnout cause a mortgage decline of 50 per cent, regional banks would suffer a four per cent drop in revenue.
"Bank earnings from large mortgage players such as JP Morgan Chase, Wells Fargo and U.S. Bancorp have been boosted over the last several quarters by strong mortgage banking income due largely to the high volume of refinancings amid generationally low mortgage rates," Fitch said in a statement. The agency added that it did not "expect this level of mortgage banking to persist". As refinances decline and mortgage rates grow, "Fitch believes bank earnings could be impacted over the next few quarters".
Figures from the Mortgage Bankers Association also recorded a drop in new home purchase loans throughout June. The Builder Application Survey showed a 15 per cent month-on-month decline in mortgage applications. This doesn't include a seasonal adjustment. Throughout the month, 67.3 per cent of loan applications were for conventional loans. FHA loans accounted for 17.4 per cent.
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