Market Preview For Week. How Chase’s Earnings Explain Mortgage Banking.

Mortgage rates are a bit worse today after a report showed China was a net seller of U.S. Treasury securities in November—this causes nervousness in all bonds including mortgage bonds, which sold this morning, pushing rates higher. We also got a flat read on manufacturing data from New York today, and here’s the market preview for the rest of the week: Besides earnings, this week’s news includes Housing Starts and Building Permits tomorrow, and weekly Jobless Claims, Existing Home Sales, Leading Economic Indicators & the Philly Fed (manufacturing data) on Thursday.

Last week JPMorgan Chase reported earnings and the numbers can be useful in showing how a mortgage bank can make money. Looking at mortgage production, mortgage loan originations hit about $51 billion at the end of 2010, up 46% from the prior year and 24% over the third quarter of 2010. CEO Jamie Dimon noted that, “In our mortgage business, while charge-offs and delinquencies have improved, credit costs still remain at abnormally high levels and continue to be a significant drag on our returns.” Mortgage banking and other consumer lending reported a net income of $577 million, an increase of $311 million, or 117 percent, from 2009. Mortgage banking net revenue was $2 billion, up by $1.1 billion. JPMorgan Chase’s mortgage banking net revenue included $244 million of net interest income, $1.6 billion of mortgage fees and related income, and $108 million of other non-interest revenue. (Mortgage fees and related income were comprised of net production revenue, servicing operating revenue, and MSR risk management revenue.) Production revenue, excluding repurchase losses, was $1.1 billion, an increase of $618 million, reflecting higher mortgage origination volumes and wider margins.

Today we had Citi’s results for the 4th quarter. Citi, typically in the top 5 list of mortgage origination volumes, reported only 4 cents per share versus 8 cents per share that was expected. Revenue came in at $19.5 billion, slightly less than expected, apparently due to investment banking revenues. Citi released a little over $2 billion of loan loss reserves, good news for credit quality which continues to improve. But a Bloomberg story points out that Citi’s earnings mask flawed mortgage loans sold to Freddie Mac.

The Ally Financial board of directors declared quarterly dividend payments for certain outstanding preferred stock, namely payable to the US Treasury. The parent of GMAC stated that it will have paid a total of approximately $1.9 billion in dividends to the U.S. Treasury since February 2009.

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