JPMorgan and the private label comeback

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Hello, LOs!

This will be a telling week for the mortgage industry. Several of the big banks will be reporting their quarterly earnings this week, which should give us a better sense of some key trends – channel mix, margin compression, MSR values, etc.

Up first is JPMorgan Chase, which released its earnings this morning. By the looks of it, the Jamie Dimon-led bank had a mixed bag in terms of home lending.

Let's start with the positives. While other lenders are expected to report declining volumes, JPMorgan originated $39.6 billion in the second quarter, up 1% over the prior quarter. It mostly stuck to its guns in terms of strategy – its channel mix was 57% retail and 43% correspondent, roughly in line with the Q1 mix, according to the earnings report.

Here's where it starts to look problematic: the bank saw gain-on-sale margins drop to 131 basis points, a 61 bps fall from the prior quarter, which KBW analyst Bose George said contributed to a decline in mortgage production income. MSR carrying value also decreased to 97 basis points from 102 basis points last quarter, George noted. Home lending revenue rose to $1.35 billion in Q2, up from a net loss of $109 million in Q1 and a net loss of $338 million year-over-year.

Still, the bank is making some aggressive moves in the mortgage space. I'd like to hear your thoughts on those moves.

A few weeks ago, JPMorgan Chase reinvested in Maxex, an electronic clearinghouse for private-label mortgages. The company, founded in 2016, matches sellers and buyers of non-QM loans, providing standardized paperwork so investors can purchase them more easily. Maxex says it conducts due diligence on the loans listed for sale and uses a standardized contract for buyers and sellers. The platform sees about $1 billion a month in mortgage bond trades. And according to the Wall Street Journal, JPMorgan has traded about $4 billion alone this year, up from $2.2 billion throughout 2020. The bank hopes the platform will attract other banks and institutional investors to jump into non-QM.

Private-label has had to contend not only with a reputational issue for its role in the financial crisis over a decade ago, but also that it essentially shut down at the beginning of the COVID-19 crisis.

Though it still remains a small percentage of the mortgage market (Fannie, Freddie and Ginnie guarantee more than three-quarters of mortgages), it's growing quickly. Issuance of bonds backed by private residential mortgages has hit about $84 billion so far this year, according to data from Bloomberg. Sales of bonds backed by jumbo mortgages have reached about $22 billion.

Home prices in some markets are pushing loans beyond Fannie and Freddie's threshold, and the GSEs recently implemented caps on buying mortgages backed by vacation homes and investment properties. That's great for private label!

So, LOs, lemme ask you – are you seeing more demand for jumbo and other non-QM products? Do you expect more investors to pile into the private label space? Email me anonymously at jkleimann@housingwire.com.

James Kleimann

Managing Editor, HousingWire