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Rise in Mortgage Rates No Surprise

Stocks in this article: BAC JPM WFC

Although it wasn't a profitable business, the hemorrhaging stopped for big banks in the mortgage space last year. Fees surged due to the refinancing wave and smart hedging for some on mortgage-servicing rights. Yet credit write-downs and charge-offs tended to net out the gains.

For instance, Bank of America (BAC), the country's largest mortgage servicer, took in $9.3 billion worth of mortgage-banking income last year, but faced an $11.2 billion provision for credit losses. Its home loans and insurance division posted a net loss of $3.8 billion.

Wells Fargo (WFC), another huge player in the mortgage space, brought in $12 billion worth of mortgage-banking income in 2009. Its provision for credit losses - which also includes bad commercial debt - was $21.7 billion. It's difficult to parcel out what portion of the provision was attributable to Wells' mortgage-banking division. But with mortgages accounting for 55% of its loan book in 2009, if the bank eked out a mortgage-banking profit, it was probably minimal and largely attributable to an aggressive hedging strategy .

JPMorgan Chase (JPM) posted $3.8 billion worth of mortgage-banking income from its retail banking division, but also recorded $15.9 billion worth of credit loss provision. You get the picture.

As a result, banks have seen a light at the end of the tunnel, but realized they must do more to reach that end . They recently began extending not just refinancing offers with lower rates, but deals to cut principal or accept interest-only payments for a period of time, in an effort to solidify the bottom.

So what does all of this mean for the housing market, and related bank profits? They'll take more than a week to recover.

-- Written by Lauren Tara LaCapra in New York.

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