U.S. Banking Review: Third-Party Mortgage Servicing Comparisons

By Trefis Team,

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There is one aspect of the mortgage lending industry that differs considerably from other forms of lending - that of mortgage servicing. It is rare for a bank to buy the servicing rights for a portfolio of student loans, auto loans or even commercial loans from an originator. But this is a very common practice when it comes to home loans, in which banks assume the risk involved with a mortgage portfolio by buying the servicing rights from the original lender, in return for all future payments from the borrowers making up that portfolio. As the big banks already have a strong workforce focused on servicing their primary loans, the mortgage servicing business allows them to generate additional revenues by using the very same resources.

Abiding by the logic, the country's biggest mortgage originator Wells Fargo ( WFC ), is also the biggest mortgage servicer. Bank of America ( BAC ) held the top spot for the service from the time it acquired Countrywide in 2008 till the end of 2011, as the banking group's decision to scale down mortgage operations gave Wells Fargo the lion's share of the market.

See the full Trefis analysis for Wells Fargo | JPMorgan | U.S. Bancorp | Bank of America| Citigroup

The table below summarizes the size of third-party mortgage servicing portfolio for each of the country's five biggest banks at the end of each quarter, over the last two years. The data has been compiled using figures reported by the individual banks as a part of their quarterly announcements.

(in $ billions) Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12
Wells Fargo 1,859 1,866 1,858 1,854 1,890 1,905 1,913 1,906
Bank of America 1,610 1,578 1,512 1,379 1,313 1,224 1,142 1,045
JPMorgan 955 941 925 902 884 860 811 859
Citigroup 440 431 404 393 379 359 340 320
U.S. Bancorp 183 185 186 191 200 207 211 216

A quick glance through the table highlights how closely the mortgage servicing business is tied up to the mortgage origination business, as we detailed in our recent article U.S. Banking Review: Mortgage Origination Comparisons. The banks which are known to focus considerably on mortgage lending (Wells Fargo and U.S. Bancorp), are the ones who have seen an increase in their third-party mortgage servicing portfolio.

On the other hand, banks which have been trimming mortgage businesses show a clear reduction in the size of this portfolio. The banking giants Bank of America and Citigroup, have both been plagued by mortgage-related charges since the economic downturn and have only recently been able to muster the courage to renew their focus on the mortgage business.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BAC , C , JPM , USB , WFC

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