Mortgage originations in the commercial and multifamily categories climbed nearly 50% in the fourth quarter versus year-ago levels, according to the Mortgage Bankers Association. For all of 2012, the number of people getting new mortgages in these categories climbed nearly 25% versus 2011 levels.
The strength in mortgage originations is being driven by a combination of low rates and improving housing conditions, where borrowers are continually investing in properties for income. The momentum has positioned mortgage originations to levels the housing market has not experienced since 2007, according to the MBAA.
The news certainly bodes well for Ellie Mae Inc (NYSE:ELLI), a company that automates the mortgage application process. Incidentally, Ellie Mae rang in the trading session on the Big Board last Monday. The exchange was celebrating the fact that shares of Ellie Mae had the highest-percentage gain of all NYSE Euronext stocks in 2012, when the stock advanced nearly 400%.
Ellie Mae’s 3Q revenues were $27.5 million, which was an 87% increase versus the year ago period. The company is profitable, and had earnings of $9.5 million in its most recent quarter compared with $2 million last year. For all of 2012, the company projects revenues of up to $100 million.
In 2012, more than half of mortgages closed using the Ellie Mae platform were refinancings, according to company’s data, while an average of 38% of mortgage originations were for new home purchases. Indeed, according to data revealed at a recent Needham & Co. investor conference in which Ellie Mae executives participated, one-in-three residential mortgage originations occur on the Ellie Mae platform. This company appears to be strategically positioned to benefit from the surge in mortgage originations even after the stock advanced by triple digits last year.
If mortgage originations continue to rise and drive banking income higher, shareholders stand to benefit. Wells Fargo & Company (NYSE:WFC) which has a large stake of the mortgage origination business, has already increased its quarterly dividend this year. Wells Fargo increased its quarterly payout by 14% to $0.25 per share, which positions the company’s dividend yield at approximately 2.8%, according to a Barron’s calculation. Wells Fargo’s dividend is still below pre-financial crisis levels when the bank paid $0.34 per share, but it is far better than the $0.05 per share investors were earning four years ago. Wells Fargo had a record 4Q with earnings of $4.9 billion. The stock is hovering at a 52-week high.
The spotlight is on the financial sector in the nation’s capitol, where renewed fears of failure surrounding the largest financial institutions have surfaced amid an insufficient Dodd-Frank law. Wells Fargo is named among the financial institutions that regulators fear pose a systemic risk to the economy. Wells Fargo has assets of $1.4 trillion and is larger now than pre-financial crisis levels, according to a recent Bloomberg report.
JPMorgan Chase & Co. (NYSE:JPM) is also named in that report on the heels of the bank’s $6.2 billion trading loss for 2012. Nonetheless, it was underlying strength in JP Morgan’s mortgage business that helped fuel a 53% surge in 4Q profits to $5.6 billion. Mortgage-related income grew more than twofold in the quarter to $2.03 billion amid strong demand, versus $723 million last year.