Updated for SunTrust's net interest margin from earnings released today.
NEW YORK ( TheStreet) -- The mortgage banking business is booming, but regional bank stocks are diving.
Last week when a majority of the regional banks reported earnings, the KBW Regional Banking ETF (KRE) declined nearly 1%.
At the same time the broader Financial Select Sector SPDR (XLF), which includes money center banks and insurance companies in addition to regional banks, increased almost 2%.Some of the biggest losers among regional banks were BB&T (BBT - Get Report), which declined 8% last week; Huntington Bancshares (HBAN), which was down 7%; and PNC (PNC), which declined a little more than 5% on the week. All three reported earnings last week. The earnings reports of these and other regional banks (as well as large banks) were characterized by strength in their mortgage banking business, thanks to the recovery underway in the housing market. Specifically, the most recent housing data showed prices of existing-home sales increased 11.3% in September, while housing starts and permits were much stronger than expected. These trends, along with the plan by the Federal Reserve to purchase up to $40 billion of mortgage bonds every month, should lead to a continued recovery in the housing market going forward, which in turn will help the mortgage business (led by refinancing fees) at all the banks. With all the good news on the housing front, you would think that the regional banks would have had better stock performance last week. But the major issue with the earnings reports from the three banks mentioned was the pressure on net interest margins. The net interest margin, often referred to as NIM, is the difference between the average yield earned on loans and investments and the average cost for deposits and borrowings. Most banks, not just the regional ones, are experiencing pressure on this line item because of the Federal Reserve's policy to keep its target federal funds rate in a range of zero to 0.25%. This policy has been in place since 2008, and the Fed recently announced that it would keep the rates in that range until at least mid-2015.