This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Mortgage Headwinds to Hit Banks in First Quarter: FBR

NEW YORK ( TheStreet) -- Strong mortgage originations have propped up earnings for banks over the last several quarters, but the trend may have weakened in the first quarter, according to FBR Capital analyst Paul Miller.

In a note Friday, Miller recommended avoiding "origination-reliant" names, specifically those trading above book value.

"We now believe that 1Q13 stands to be lower than we expected from an industry origination standpoint, largely driven by seasonal weakness with the most significant impact at larger originators and potentially driving near-term weakness across the group," he wrote.

While the Mortgage Bankers Association estimates first quarter originations totaled $482 billion, Miller said that based on conversations within the industry, originations were likely lower than expected, closer to $400 billion.

The analyst lowered his earnings estimates for Bank of America (BAC - Get Report), Fifth Third Bancorp (FITB), Flagstar Bancorp (FBC - Get Report), US Bancorp (USB - Get Report), SunTrust (STI - Get Report) and Wells Fargo (WFC - Get Report), to reflect reduced originations.

Low interest rates and an expanded government refinance program have boosted refinance volumes while fresh mortgage originations are starting to slowly creep higher. Banks have also raked in profits from gain-on-sale margins -- the profits they earn on selling the refinanced loans to investors.

Many analysts fear that the refinance boom will peter out, ending the winning streak for banks that have rideen the wave, especially Wells Fargo.

Still, FBR remains positive on mortgage banking for the rest of the year as low interest rates and government initiatives to expand mortgage credit continue to fuel volume growth.

"We continue to believe the perceived "refinance cliff" will happen later rather than sooner, with the hopes that refinance volumes will remain elevated long enough for the purchase market to continue to gain traction," Miller wrote. "Though gains on the purchase side have been incremental thus far, housing supply improvements and mortgages for additional credit tranches provide meaningful tailwinds to volumes even as gain-on-sale margins continue to contract."

For more on what to expect from banks in the first quarter, read Big Four Bank Earnings: What to Expect.

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $17.48 0.00%
FBC $24.72 0.00%
STI $43.52 0.00%
USB $43.90 0.00%
WFC $55.39 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs