(Keith Negley, For The Times )
America's long-suffering housing market may be on the mend, two major banks said as they reported big jumps in profits.
JPMorgan Chase & Co. and Wells Fargo & Co., the nation's largest home lenders, each reported double-digit quarterly earnings growth Friday. The big jump in profit was thanks largely to a surge in their mortgage businesses, fueled by low interest rates and waves of refinancing.
It led JPMorgan Chief Executive Jamie Dimon, considered one of Wall Street's most high-profile bankers, to declare: "We believe the housing market has turned the corner."
Home lending is booming. The banks said profits on the sale of home loans were twice as high as traditional levels as the Federal Reserve kept interest rates at historical lows to help stimulate the economy.
JPMorgan and Wells Fargo, which emerged from the financial crisis as two of the strongest U.S. banks, control nearly half of the nation's mortgage volume. They reported a surge in revenue from mortgage origination and servicing during the last three months.
Wells said it issued $139 billion in mortgages from July through September, compared with $89 billion in the same period last year. JPMorgan wrote $47 billion in mortgages, compared with $37 billion last year.
"Both companies clearly expressed a view of signs of recovery, if not stabilization" in the housing market, Sterne Agee banking analyst Todd Hagerman said. "These guys should continue to report very healthy [mortgage] numbers for at least the next several quarters, if not through 2013."
There were some signs, though, that the boom isn't as strong as it might seem. The large majority of mortgage lending was driven not by people buying new homes but by owners refinancing mortgages, which is less helpful to the housing market.
Still, the numbers were eye-catching.
At Wells Fargo, mortgage business revenue rose 55% to $2.8 billion during the third quarter from $1.8 billion in the year-earlier period. The San Francisco bank posted an overall profit of $3.94 billion, which easily surpassed Wall Street projections.
JPMorgan's mortgage business posted a 71% increase to $2.4 billion from $1.4 billion last year. This led the bank to beat expectations with an overall profit of $5.7 billion.
Americans have been scrambling to take advantage of a low rate environment in which the 30-year fixed loan this month hovered at about 3.4%, down from 4.1% a year ago. In 2008, the rate was well above 6%.
And it's all against a backdrop of signs nationwide that the fractured housing market could be healing. A Federal Reserve survey this week found that a stronger housing market helped economic growth in almost every part of the country. Home sales are up, prices are rising more consistently in most places and builders are more confident.
Economists have been predicting that any lift in the housing market could boost the broader economy. When homeowners have more equity in their homes or gain extra cash from a refinancing, it tends to free up more money — and that boosts consumer spending.
The top executives of JPMorgan and Wells Fargo said housing still has room to recover further.
Dimon noted that there are still plenty of homeowners who can't afford their mortgages and that the bank is still seeing a high level of souring mortgage loans. He expects high default-related expenses "for a while longer."
Meanwhile, Wells Fargo CEO John Stumpf acknowledged that the housing market is still "not back to where we need to be, and it is not as robust as we would all want it to be."
The banks reported increasing loan defaults and worrisome consumer delinquencies. Both also reported high costs associated with servicing older mortgages, and JPMorgan set aside an additional $684 million in the third quarter for litigation expenses.
The disclosure of that pretax expense came a week after New York Atty. Gen. Eric Schneiderman hit JPMorgan with a lawsuit stemming from mortgage bonds sold by Bear Stearns, the investment bank that JPMorgan purchased when it ran into trouble during the financial crisis.
And in the latest in a long series of lawsuits against mortgage lenders, federal prosecutors in Manhattan this week accused Wells Fargo of defrauding the Federal Housing Administration of hundreds of millions of dollars by wrongly certifying that loans were good enough to be insured by the FHA.
Tim Sloan, Wells Fargo's chief financial officer, said the bank planned to vigorously defend itself against the government's claims.
"We're proud to still be the largest FHA lender, and the performance of mortgages we've underwritten has been excellent for a very long time," Sloan said. He refused to rule out forcing the government to take the FHA case to trial. "Anything is possible in litigation."
With record profits and a robust mortgage business in the spotlight Friday, JPMorgan seemed to be able to rebound from Schneiderman's legal maneuvering. The bank also seemed to emerge from the shadows of losses caused by the risky derivatives bets made by a trader nicknamed "the London whale."
The bank had pegged the losses at $5.8 billion as of the second quarter, and on Friday said they had widened modestly by $449 million.
"Hopefully we're not going to be talking about it anymore," Dimon said in a call with reporters.
The Associated Press was used in compiling this report.