Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM): How Much Do Mortgage Volumes Matter?

The housing market is central to an economic recovery.

Some are worried that higher rates may slow the housing recovery, depress home prices, and ultimately threaten bank earnings as mortgage volumes slump. Let’s assess just how important mortgages are to the two largest mortgage originators.

Wells Fargo & Co (NYSE:WFC)

The favorite bank of Berkshire’s Warren Buffett, Wells Fargo & Co (NYSE:WFC) reported impressive earnings in the most recent quarter. The company continued on a trend of mortgage origination profits, though many worry that the trend may soon come to an end.

Wells Fargo & Co (NYSE:WFC) tends to suffer from an identity crisis. It used its strong position in the financial crisis to steal Wachovia at bargain bin prices, becoming the largest mortgage banker in the world. Some 50% of Wells Fargo & Co (NYSE:WFC)’s income comes from noninterest income – income earned from fees and origination, not long-term lending. Of that 50%, 22% came from mortgage origination, brokering, and related fees.

So just how much did Wells Fargo & Co (NYSE:WFC) earn from mortgage origination?

Wells Fargo & Co (NYSE:WFC) recorded $2.21 billion in gains on the sale of new mortgages originated. If we assume that its costs of production are in-line with other competitors like JPMorgan Chase & Co. (NYSE:JPM), which reports the cost of new mortgages issued, pre-tax profits come in at $568.49 million for new mortgages.

Thus, of earnings of $5.2 billion, mortgage origination represents only about 6% of bottom line net income to the firm. Its substantial community banking divisions, which earn interest and noninterest income on everything from savings account fees to car loans, provide the firm of with two-thirds of its profits. Mortgage origination is merely a drop in the bucket.

JPMorgan Chase & Co. (NYSE:JPM)

The second-largest mortgage banker reported strong earnings this quarter. Excluding the impact of a reversal from a loan loss provision, the company earned $5 billion in its most recent quarter.

Despite the fact it is the second-largest mortgage originator in the country its earnings are hardly tied to the origination and sale of new mortgages. JPMorgan Chase & Co. (NYSE:JPM) earned only $566 million in pre-tax income from mortgage production and sale, making mortgages a meaningful 6% of quarterly profits, but hardly tying the bank to the changes in the mortgage market.