Everyone is asking is this the bottom of the housing slump? Many analysts think we have reached a bottom, but Robert Shiller and other experts, are not so sure. Today, we are able to determine part of the answer from Wells Fargo & Company (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) earnings. Wells Fargo & Company (NYSE:WFC) is the largest lender in the country, so they would know a thing or two about the topic. JPMorgan Chase & Co. is according to some estimates the third largest lender. So what do their earnings show us about mortgages and housing? Housing appears to be improving, despite Wells Fargo & Company (NYSE:WFC)’s disappointing income on its mortgage business.

JPMorgan Chase

Deutsche Bank notes that Wells Fargo & Company (NYSE:WFC) 3Q mortgage revenues and credit quality were better than expected, but net interest income (50% of total revenue) disappointed due to sluggish loan growth and a large decline in the net interest margin.

Goldman Sachs notes regarding both companies:

HARP, with its outsized gain on sale spreads, remained a tailwind a t20% of refinance/ 15% of total volume. Additionally, both banks pointed towards a strong backlog, indicating this tailwind can continue through 2013.

Credit Suisse states that retail Financial Services revenues improved given stronger mortgage banking revenues; results impacted by regulatory change in credit quality reporting. Total RFS revenues of $8.0 billion improved 1% q/q and 6% y/y. The improvement in revenues was primarily attributable to better performance in mortgage revenues. Average loan
balances declined $4.6 billion or down 8% (ann.) q/q and down 7% y/y reflecting portfolio run-off. Charge-offs totaled $1,531mn which included $825mn related to the regulatory change related to charging off current and early stage delinquencies post-Chapter 7 bankruptcy loans to the value of the underlying collateral.

Jamie Dimon is widely quoted as saying that housing has turned a corner, but we did not find any of those words in the JPM conference call transcript. Here is what we found:

Glenn Schorr – Nomura – Analyst

Okay, thank you. Staying with the mortgage theme, I guess I’m looked — the overall message seems like — in your words — housing has turned and you lowered reserves a little bit. You’ve got a lot more reserves to go, so what things do you look for for that to continue? Is there — is it apples and oranges when you look at the other side of the coin and see that repurchase claims are up, litigation reserves are up? And there has been a whole lot of press lately about some cases going against the industry or some court rulings going against the industry on the put back side.

Doug Braunstein – JPMorgan Chase & Co. (NYSE:JPM) – CFO:

Glenn, maybe I can separate it out. On the mortgage reserve side, what we said in outlook is if the trends continue the way we are you should expect to see more reserve releases, but that is subject to the current trends.

On the repurchase side, that data in the back in the supplement is both GSE and private label, so the trends we talked about last quarter on the GSE side that run through the mortgage lines continue. And so you saw our actual paid claims at [230], our reserve release I think is [218] if I’m recalling correctly. We expect that subject to obviously certain changes to continue.

Jamie Dimon – JPMorgan Chase & Co. (NYSE:JPM) – Chairman and CEO states on the call:

You basically laid it all out already, which is lower rates hurts you a little bit. They obviously help mortgage origination and ultimately housing prices, because low rates could drive that part of the economy a little bit. If it were to drive the economy and I’m not sure it will, that would be a plus for us. So I think they’re doing their job not to help banks or hurt banks but to try to drive the economy and drive jobs. If that works, it’s a good plus.

On the repurchase side, that data in the back in the supplement is both GSE and private label, so the trends we talked about last quarter on the GSE side that run through the mortgage lines continue. Additionally he states, we expect that subject to obviously certain changes to continue.

And then on private label, we have told you based on what we knew that we thought we were well reserved for those issues but obviously circumstances can change and that will change our reserving policy when and if appropriate.

John Stumpf – Wells Fargo & Company – Chairman, President & CEO, from today’s earnings call (emphasis is ours).

In the current low rate environment, our mortgage business continued to benefit from strong refi and purchase volume, and credit quality reached and reflected an improving housing market. Our credit card business is successfully generating new account growth, up 46% from a year ago and we are focused on increasing customer card usage, which is generating strong balance and fee growth. We have grown managed accounts assets in our retail brokerage business over 25% in the past 12 months, driven by strong net flows and market performance.

Mortgage originations were $139 billion in the third quarter, up $8 billion from the second quarter and up $50 billion from a year ago. 14% of our origination volume this quarter was from HARP. The unclosed mortgage pipeline at quarter end was $97 billion, down from last quarter but still very strong, and volume during the first few weeks of October has accelerated as rates reached new lows.

The quality of our mortgage servicing portfolio (is strong) with over 70% of the portfolios being with the agencies. The quality of our portfolio is demonstrated by the low delinquency and foreclosure rate on our servicing portfolio, which was over 400 basis points lower than the industry average, excluding Wells Fargo, based on the most recently publicly available data. Our total delinquency and foreclosure rate was 7.32% in the third quarter, down from 7.63% a year ago and a peak of 8.96% in the fourth quarter of 2009.

However, one positive future signal comes from the conference call. Tim Sloan – Wells Fargo & Company (NYSE:WFC) – Senior EVP & CFO in the Q&A states:

As we mentioned, volume has been strong so far this quarter being the fourth quarter, so we expect to have a pretty strong mortgage quarter in the fourth quarter.