Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM): An Unexpected (but Welcome) Consequence of Rising Mortgage Rates

The motive stems from the twilight of the refinancing wave. In Wells Fargo & Co (NYSE:WFC)’s case — which matters disproportionately because it controls upwards of a third of the domestic mortgage market — the revenue hole is huge. Last quarter was the seventh consecutive time that it had more than $100 billion in mortgage originations. In the vast majority of those quarters, roughly two-thirds of the volume related to refinancing activity.

And the opportunity is similarly grounded, given the vast quantity of manpower that the bank can — and, at least in part, will — redirect to originating purchase-money mortgages.

The net result is that, while the absolute number of purchase-money applications might decline in the face of rising interest rates, the proportion of them that are approved by lenders may be on the ascent.

For anybody who cares about the housing market — and I say that somewhat facetiously because, as my colleague Morgan Housel has noted, “there hasn’t been a strong economy without a strong housing market in modern history” — this is very good news, as it supports the idea that home sales will continue their upward momentum.

It’s estimated that every single-family home built by the likes of D.R. Horton, Inc. (NYSE:DHI) and PulteGroup, Inc. (NYSE:PHM) generates between two and three sustainable jobs. In addition, an increase in demand for housing will presumably push home prices higher, which will reduce the number of underwater homeowners and thereby spur consumer spending. It is, indeed, a virtuous circle.

The article An Unexpected (but Welcome) Consequence of Rising Mortgage Rates originally appeared on Fool.com and is written by John Maxfield.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Citigroup, JPMorgan Chase, and Wells Fargo.

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