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Mortgage Lending Comes Back to Life

Residential mortgage lending is rising, a sign the economy is on the mend.

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Residential mortgage lending is on the road to recovery, according to a review of new first-quarter reports for almost all of the nation's banks.

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According to preliminary data from SNL Financial, banks originated $370 billion of mortgages for single- and multi-family homes during the first three months of the year, up 72% from the fourth quarter and 28% from a year earlier.

Despite rising loan delinquencies and economic reports that have been mostly negative, the increase in residential mortgage lending has fed investors' appetites for bank stocks over the past two months. The improved credit flow is an early sign the stock market needs to anticipate an economic recovery.

A note about the data:

While all banks report the amount of mortgage loans they have on their books, most aren't required to submit the total volume of new mortgage lending. However, banks with more than $1 billion in assets are required to report mortgage originations, as are banks with $10 million or more in new mortgage lending activity for two consecutive quarters.

Savings-and-loan companies aren't required to report loan origination data. But they report mortgage sales, which offer a clear indication of origination because most of the loans are new.

The data used for this article include closed-end first and junior mortgages on homes for one to four families, and excludes home-equity loans.

Largest Mortgage Players

A look at the banks with the largest mortgage-lending operations offers a compelling sign of improvement. It also addresses critics of the Troubled Asset Relief Program, who complain that large banks that received government aid haven't boosted lending enough.

Wells Fargo

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had the highest origination volume among domestic bank holding companies, with $92.4 billion. That almost doubles the loans issued in the fourth quarter. It's a 45% increase from the year-earlier period.

Bank of America

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was second on the list, with $81.1 billion in originations, a 67% increase from the fourth quarter and more than four times its volume from a year earlier. Bank of America's figures don't include the $36.7 billion of loans issued by

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Countrywide Financial

that quarter. Bank of America acquired Countrywide Financial in July, betting that Countrywide's lending platform would help it gain an advantage.

Bank of America's first-quarter earnings showed that about 25% of first-lien mortgages were issued for home purchases. However, most of them went to homeowners who were refinancing to take advantage of historically low interest rates, suggesting the number of unsold homes in distressed areas hasn't shrunk significantly.

During the company's earnings conference call, Chief Financial Officer Joe Price said the company expected "strong origination trends to continue for the balance of 2009." CEO Ken Lewis said the company was "continuing to see good inflow, so I'd expect that to quite frankly just continue for at least until you see some kind of significant change in rates."

Last week, Bank of America said it had raised $13.5 billion in the past two weeks by issuing 1.25 billion shares. Earlier this month, the company made $7.3 billion by selling part of its stake in

China Construction Bank

. The company might sell more assets to raise another $33.9 billion, the amount it needs to weather a prolonged recession based on Treasury-administered stress tests.

JPMorgan Chase

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was third on the list with $36.7 billion in originations, up 43% from the fourth quarter and 11% from a year earlier. The company bought

Washington Mutual

in September, when it became the largest savings-and-loan failure in history. Washington Mutual's mortgage originations from the first quarter of 2008, which aren't included in the table, totaled $13.8 billion, including home-equity loans.

When you factor in Washington Mutual's loans, JPMorgan's volume declined from last year, which reflects the company's decision to reduce wholesale mortgage lending.

Other Mortgage News


Wall Street Journal

reported last week that the Obama administration was considering federal oversight of the mortgage industry. This would address loopholes in the current regulations for mortgage brokers and non-bank mortgage lenders. Most of these entities are regulated on the state level, exempting them from a wide variety of rules.

One of the most bitter regulatory battles during the housing boom involved "pre-emption." In those situations, federal and state governments tangled over disputes involving non-bank mortgage lenders that were part of bank-holding companies that also held nationally chartered banks or thrifts.

In the past, the Office of the Comptroller of the Currency prevented states from taking action against these kinds of lenders, even if they ran shady businesses. The OCC also refused to go after the mortgage companies, saying it lacked the authority. Federal judges almost always ruled in favor of federal regulators, continuing what some considered a power-grab by the federal government.

Arguments before the Supreme Court about pre-emption continue, with New York Attorney General Andrew Cuomo pursuing a case he inherited from Eliot Spitzer. It stems from a 2005 investigation in which Spitzer requested mortgage-lending information from companies including


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, JPMorgan and Wells Fargo.

Philip W. van Doorn joined Ratings in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. He has 15 years experience, having 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. He also has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.