What Rising Mortgage Rates Mean for Banks

If you've been thinking about refinancing your mortgage, then you might want to get on top of that sooner rather than later. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage increased this week to 3.91%. That's nearly 60 basis points higher than the trough at the end of 2012.

Besides the immediate implications to your monthly payments, however, a more nuanced question is: What does this mean for the banks? I'm talking specifically about Wells Fargo (NYSE: WFC), JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), and U.S. Bancorp (NYSE: USB), which collectively account for a majority of home loans in the United States.

It's tempting to conclude that this is bad news. Take Wells Fargo as an example: in the first quarter of this year, it originated a staggering $109 billion in home loans -- by comparison, the other three banks combined underwrote $99 billion dollars' worth. If one were to believe the laws of supply and demand, it seems all but certain that these astronomical numbers will come down as the price of mortgages (expressed via its interest rate) goes up. Wells Fargo's CFO Timothy Sloan alluded to this on a recent conference call saying that, "it's probably likely that revenues and margins [in the mortgage business] will come down a little bit." (more)

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