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Rise in Mortgage Rates No Surprise

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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