Bank of America Corp (BAC): Making Sense of Why It’s Higher Today

According to the MBA’s Mike Fratantoni, “Mortgage rates increased by the most in a single week since 2011, and refinance application volume dropped to its lowest level in almost two years. However, applications for conventional purchase loans picked up by more than 3 percent over the week, and total purchase applications were 16 percent higher than one year ago, indicating that homebuyers are not yet dissuaded by the increase in mortgage rates.”

The final two areas in which banks could feel the influence of higher mortgage rates are in the value of the mortgage-servicing rights, or MSRs, and in their net interest income. The value of the former should head higher as mortgage rates climb, as it will reduce prepayments via refinancing. And the amount of income derived from their securities portfolios should be boosted as well — though this will be offset by a downward adjustment for the underlying securities themselves.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase.

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