US rate spike “slams” mortgages

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From the WSJ:

A rise in interest rates is slamming homeowners’ demand for mortgages, prompting large and midsize banks to cut jobs and warn investors of declining profitability in the home-loan business.

Wells Fargo WFC +1.75% & Co., the nation’s largest mortgage company by loan value, on Monday told investors at a conference that it expects mortgage originations to drop nearly 30% in the third quarter to roughly $80 billion, down from $112 billion in the second quarter.

JPM +1.53% J.P. Morgan ChaseJPM +1.53% & Co., the largest U.S. bank as measured by assets, said during the conference sponsored by BarclaysBARC.LN +2.07% PLC that it expects to lose money on its mortgage-origination business in the second half of the year. On Aug. 29, Bank of America Corp., BAC +0.90% notified about 2,100 employees that they were being let go largely due to a decline in refinancing activity, said a bank spokesman.

…The mortgage slump also is taking a toll on smaller lenders, some of which pumped up their home-loan business to help offset a slowdown in commercial lending.

M&T Bank Corp. Chief Financial Officer Rene Jones on Monday told investors that they should brace for a “significant” decline in mortgage-banking volumes in the third quarter, noting that analyst projections for the industry have been a “little rosier than we would have expected” given the environment.

…The slowdown is perplexing to industry veterans like Gerald Lipkin, who has been chief executive of New Jersey lender Valley National Bancorp since 1989.

Mortgage volumes are “way down” at the bank even though Valley already has switched its focus away from refinancing deals to new home loans, he said. Mortgages represent roughly 20% of Valley’s loan portfolio.

Mr. Lipkin said rates are still at historically low levels despite the recent increase.

“I remember when mortgage rates were 14% and if you got a loan at 12%, everyone thought it was terrific,” he said.

Well, Mr Miller, maybe everyone else remembers a small event in between, called the GFC.

Treasury yields rose again last night. The thirty year closed at 3.89% just shy of a new high. 10 year yields hit 2.96% also right under a new high.

Mortgage rates are still climbing as result:

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The Fed does want to curtail the building US house price rebound without busting it. It’s going to be quite a challenge with capital markets exaggerating its every utterance.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.