The rise in interest rates has negatively impacted refinancing applications, driving earnings of regional banks down for the second quarter of the year. According to recent reports forwarded by banks like the US Bancorp and the BB&T, revenues fell significantly by 11 and 15 percent, respectively. It’s a sweeping trend covering even the largest regional banks.
Banking income from mortgagesfell by double digits on a percentage basis for many regional banks. SunTrust Banks from Georgia reported a $63 million decrease in income for the quarter. JPMorgan, PNC Financial Services and Citigroup also reported declines by 33 to 41 percent.
The previous increase in wages and the strong labor market which allowed the housing sector to recover after the crisis has gradually been undermined by the increase in competition and funding costs, canceling out the gains and bringing down the numbers of refinances as a result, for example.
This is after the banks have also significantly benefitted from refinances during the early years post-crisis to help many borrowers get out of their common mortgage woes.
A necessary shift
On the other hand, it should be noted that mortgage applications are increasing as more first-time homebuyers enter the market, possibly to take advantage of historically-low interest rates.
But as rates start to rise, with a tumbling pattern that – although dramatically inching up and down in the past few months are still pointing towards an upward trajectory, many of the refinancers in the past few years are slowly rethinking the prospect of a refinance.
The chief economist of the Mortgage Bankers Association, Mike Fratantoni, said they expect the refi volume to drop by more than 40 percent in 2017 compared to the year prior.
“With the decline in volume, we are seeing vigorous competition for the loans that are getting done, and profit margins have narrowed for all lenders,” Fratantoni said.
As the results shift, the lenders are also making a corresponding change in their structure to give a leeway for the future.