J.P. Morgan’s (JPM) Mortgage Banking segment includes mortgage origination and servicing activities as well as portfolios consisting of residential mortgages and home equity loans. This segment continues to be affected by numerous headwinds.
High levels of student debt
US student loan balances are on the rise. The average student loan balance per borrower is also rising, as shown in the graph above. Debt levels may continue to rise as well, given the increasing cost of higher education.
This may impact new purchases in two ways. First, individuals already holding a student loan might not want to take on another one to buy a home. Second, a person’s loan application could be rejected based on the size of their student loan and their ability to repay it.
Changing views toward home ownership
According to the Fannie Mae National Housing Survey, the percentage of respondents who say it’s a good time to buy a home has fallen since 2014, and it remains low. At the same time, the share of first-time home buyers as a percentage of the market is falling and is at its lowest level in last 27 years.
All-cash home purchases on the rise
According to the National Association of Realtors, the percentage of all-cash home purchases has been on the rise since the financial crisis. But this seems to be more the result of fewer loan-facilitated home purchases than an actual increase in all-cash buying.
Regardless, these trends suggest the originations market could remain depressed in the near future. Originations at other banks are affected as well, including at Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C), and other banks in the Financial Select Sector SPDR ETF (XLF). Together, the big four banks make up ~27% of XLF.
The impact of this challenging environment is reflected in J.P. Morgan’s Mortgage Banking segment’s performance. We’ll delve into this topic in greater detail in the next part of our series.