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Third-Party Servicing Portfolios for Big Banks Continue Drastic Decline

bankMajor banks across the U.S. are being cautious about adding mortgages that they did not originate to their balance sheets, and in turn, have recorded drastic declines in their third-party mortgage servicing portfolios since early 2009, shortly after the economic downturn in 2008.

JPMorgan, Bank of America, Citigroup, Wells Fargo, and U.S. Bancorp all experienced yet another decrease in their third-party mortgage servicing portfolios in the second quarter of 2015, according to an article on TREFIS.

"The mortgage serving business fell out of favor with most banks in the aftermath of the economic downturn of 2008, and the three largest banks have reported a notable decline in the size of their mortgage servicing portfolios since early 2009," the TREFIS team said. "Although Wells Fargo and U.S. Bancorp capitalized on the reduced competition and the sharp increase in mortgage activity over 2011-2012 to bulk up their mortgage servicing operations, even these banks have reported a reduction in their third-party mortgage servicing portfolio over recent quarters."

TREFIS also noted that the five aforementioned banks "still retain a strong grip on the industry–taking up five of the top six positions in the mortgage servicing industry."

Although it is rare that banks buy servicing right for portfolios of student loans, auto loans, or commercial loans from originators, this is a very common practice for banks to purchase home loans, the report explained. When this occurs, banks assume all risk for the portfolio and expect payments from the borrowers within that portfolio.

Major Banks Third-Party Mortgage Servicing Portfolios

(in $ billions) Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Q3’13 Q4’13 Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15
Wells Fargo 1,890 1,905 1,913 1,906 1,890 1,896 1,910 1,904 1,894 1,880 1,870 1,861 1,835 1,809
JPMorgan 884 860 811 859 849 832 831 816 803 786 766 752 724 723
Bank of America 1,313 1,224 1,142 1,045 949 759 616 550 527 505 491 474 459 409
U.S. Bancorp 200 207 211 216 220 224 227 227 227 225 225 225 225 225
Citigroup 379 359 340 320 305 295 287 281 267 246 229 219 212 204

*It should be noted that the total servicing portfolio for each of these banks is larger than the figures seen here, as each of them also services the mortgages they originate and retain. (Photo Courtesy of TREFIS)

Wells Fargo and U.S. Bancorp are known to steer toward mortgage lending and experienced the smallest reduction in their third-party mortgage servicing portfolios in recent years. However, banks that are cutting their mortgage business display huge declines in their portfolio size, the report stated.

"It should be noted that the decline over recent quarters is not just because of a more risk-averse stand taken by banks towards third-party mortgages," TREFIS explained. "Although most of these banks have continued to add to their mortgage servicing portfolios, these acquisitions have been unable to match the exceptionally high repayment rates seen in the last few quarters."

Click here to read the full article.

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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