NEW YORK (

TheStreet

) -- Bank stocks staged a modest recovery on Wednesday, after taking their worst pounding in over two years in yesterday's session.

The

KBW Bank Index

(I:BKX)

rose just 0.1% to close at 62.45 though all but eight of the 24 index components ended with gains. The broad indices fared better. The

Dow Jones Industrial Average

I:DJI

and

S&P 500

( SPX.X) ended with gains of 0.3% while the

NASDAQ Composite

I:IXIC

posted an increase of 0.4%.

Among large U.S. banks, the winner was

New York Community Bancorp

(NYCB) - Get Report

as shares advanced 1.4% to close at $14.96. With a quarterly payout of 25 cents, New York Community has one of the highest dividend yields on common shares in the banking industry with a yield of 6.68%.

Large banks that recorded gains close to 1% included

Commerce Bancshares

(CBSH) - Get Report

of Kansas City, Mo., which closed at $44.02;

First Niagara Financial Group

(FNFG)

of Buffalo, N.Y., closing at $10.38; and

Zions Bancorporation

(ZION) - Get Report

of Salt Lake City, which ended the session at $28.16.

Shares of

JPMorgan Chase

(JPM) - Get Report

were down only two cents to $50.58 despite

continued flow of leaks from federal regulators

about large fines the company is facing.

Housing Drags on Rising Rates

Following Tuesday's fear over the buildup to possible military action against the government of Syria by the United States and its traditional allies, financial names were stalled by mediocre housing data, declining refinance applications and an inventory shortage in several major markets.

The Mortgage Bankers Association on Wednesday said its Market Composite Index for the week ended Aug. 23

was down 2.5% from the previous week

. The Market Composite index measures total residential loan application volume.

The MBA's Refinance index was down 5% from the previous week, and was down over 64% from its peak early in May.

The average rate for a conforming 30-year fixed-rate mortgage loan during the week ended Aug. 23 was 4.8%, rising sharply from 4.7% the previous week. A "conforming" mortgage loan is one that meets the basic underwriting of Fannie Mae and Freddie Mac, with a loan-to-value ratio of 80% or lower, and a principal balance of $417,000 or less. Rates on conforming mortgage loans hit their highest level since April 2011.

Mortgage loan rates have been rising rapidly, in line with the market yield on 10-year U.S. Treasury bonds, which have risen to 2.79% Wednesday afternoon from 1.70% at the end of April. The market has been anticipating a decline in the

Federal Reserve's

net purchases of long-term bonds. The Fed, as part of its "QE3" effort to hold-down long-term interest rates, has purchased $40 billion in long-term mortgage-backed securities and $45 billion in long-term U.S. Treasury bonds each month since last September.

The Federal Open Market Committee is expected by many economists to gradually taper its bond-buying after the committee's next meeting on September 17-18.

The resulting media hysteria over expectations of the Fed curtailing its monetary stimulus will most likely resume after Labor Day and hit a fever pitch in the second week of September.

Also on Wednesday, the National Association of Realtors said its Pending Sales Index declined to 109.5 in July from 110.9 in June, although the index was still 6.7% higher than a year earlier. NAR chief economist Lawrence Yun said the small decline in existing-home sales "is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown." But Yun also said "higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West."

"So far in 3Q, higher mortgage rates have driven mortgage app volume down 36% Q-Q (on avg.), and we anticipate banks will see a sharp decline in mortgage banking fees this quarter as a result," Jefferies analyst Ken Usdin wrote in a note to clients Wednesday.

More Skin in the Game

In industry news on Wednesday, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and other federal agencies proposed that aside from "qualified residential mortgage loans," or QRM, mortgage

loan securitizers should be required to retain 5% of the credit risk

of the loans the sell through securitizations. The rules are subject to a 60-day comment period, but as we have seen with so many rules proposed to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, it may take much longer for the final rule to be set.

RELATED STORIES:

Federal Leak Machine Continues to Harass JPMorgan Chase

America's Most Profitable Bank Could Be Wells Fargo

Regulators Propose Banks Retain More Risk when Securitizing Mortgages

Refinance Applications Drop, Purchase Applications Rise: Survey

Pending Home Sales Fall 1.3% in July as Higher Rates Slow Demand

BAC Sees $7.2B Drop in Mortgage Service Expenses

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.