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Mortgage market surges

Lenders log big profits, but refinancing may be reason

– Is the mortgage market really back?

The country’s two biggest mortgage lenders, Wells Fargo and JPMorgan Chase, reported Friday that a surge in home lending pushed them to record profits.

JPMorgan CEO Jamie Dimon declared that the housing market “has turned the corner.” Wells Fargo CEO John Stumpf said that “every quarter, we have more confidence.”

Wells said it issued $139 billion in mortgages from July through September, compared with $89 billion in the same period last year.

JPMorgan wrote $47 billion in mortgages, compared with $37 billion last year.

There were signs, though, that the boom isn’t as strong as it might seem. The large majority of mortgage lending was driven not by people buying new homes but by owners refinancing mortgages, which is less helpful to the housing market.

The business was also propped up by government programs, like a federal initiative meant to encourage refinancing, and the Federal Reserve’s pledge to buy more mortgage-backed bonds.

The banks’ mortgage units are also a magnet for legal disputes, with both banks facing new mortgage- related lawsuits just this month. And nobody knows how long the revenue gains will last.

“We don’t expect to count on the high margins and mortgage origination forever,” Dimon said in a call with financial analysts. “You’re going to have it next quarter, maybe for a couple of quarters after that, but it won’t last for that much longer.”

Still, the numbers were eye-catching: Mortgage lending revenue jumped 56 percent at Wells and 29 percent at JPMorgan compared with a year ago, driving overall revenue gains at both banks.

And it’s all against a backdrop of signs nationwide that the fractured housing market could be healing. A Federal Reserve survey this week found that a stronger housing market helped economic growth in almost every part of the country. Home sales are up, prices are rising more consistently in most places, and builders are more confident.

The executives didn’t suggest that one quarter of mortgage strength means the housing market is fixed. At both banks, about three-quarters of the mortgage-lending revenue was from refinancing. About 15 percent was from a government program, the Home Affordable Refinance Program.

The Fed’s plan last month to buy mortgage-backed bonds is also likely to fuel the numbers. The plan is meant to keep interest rates low, which is supposed to encourage borrowing and refinancing. It can also help banks make a bigger profit when they sell mortgages to investors.

Stumpf, the Wells Fargo CEO, said that the Fed plan was enabling the bank to hire.

Wells and JPMorgan are bellwethers for mortgages.

Wells controls a third of the market, according to the trade publication Inside Mortgage Finance.

JPMorgan is second, controlling about 11 percent.

Both banks cited low interest rates to help explain the boost in refinancing, though it wasn’t clear why this quarter was so strong.

Rates have been low for several years.