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As we saw on the latest round of earnings banks are making money hand over fist especially in the mortgage business that with a stagnant housing market mortgage rates near record lows shouldn't banks be doing more to help homeowners -- -- Matt McCormick.
I'm senior portfolio manager and banking analyst welcome -- that.
-- -- I think is it that Wells Fargo reported four point eight billion dollars in revenue the first half figure that something like an increase of over 150%.
From the same period last year.
-- -- -- There was a mortgage machine -- -- and as you pointed out -- with record low rates.
You're seeing people refinancing.
Existing mortgages which -- certainly helps wells Fargo's business but also you're seeing.
A slight uptick in housing which -- getting people entering into the market which is a great thing.
And I think when you talk about Wells Fargo they are clearly anomaly.
With most banks if you look at most banks they are growing their earnings from selling off loan loss reserves are selling noncore assets and year over year with CDS and 47% growth and earnings.
However year -- year the revenue for most banks is a conglomerate are down about 3.5 5%.
So Wells Fargo the reason why there growing revenues is because -- Morgan for the most part they're mortgage specialists can clearly see that in the results.
Lot of criticism though against the banks and there always is right everybody's always quick to say banks are greedy but when you look at that level profit margin.
We just I just throughout Wells Fargo is an example because quite honestly it -- -- the only when that forward with a pick numbers.
But again because of these distressed homeowners and all these federal programs to help these especially underwater homeowners.
The -- kind of shows that you know banks -- be offering mortgage originations at a much lower interest rate.
And still make a profit margin that similar to what it was just a couple of years ago.
That does a great point when you look at what happened years ago but cents a couple years ago you've had a dramatic change in the industry you have the Durban amendment you've had Dodd-Frank.
You've had higher regulatory.
Scrutiny that results in higher capital ratios demands from regulators for more judicious loans.
-- people to start making the money they used to offer credit card fees or other processor -- be able to.
Pass it onto the consumer -- So when you see in one area where a lot of the banks have may be higher profit margins.
For most of the other areas they've been dramatically reduced and yet most people say hey I want banks to come back I don't want the government to bail them out I want the government to move back.
But it's essentially you have a business line that is forever change and it's my belief they're gonna be somewhat like utilities going for where they have regulated revenues regulated earnings.
Regulated dividend increases it is something as a bank investor I have more questions and answers and we feel some of these banks are not the best place to be certainly with the volatile market environment see your point is -- in some areas.
They're making a lot of money but for the vast majority of banks after they've been struggling dramatically again with the revenue growth that seems to be very anemic in fact.
Make -- right right and and I get your point clearly crystal clear Matt.
But then there's the other you know course of analysts who -- suggests there there is much much less competition in the mortgage origination.
Industry and then -- you've also got situation where okay to have higher restrictions.
And -- sat pressure to buy back delinquent mortgages right but if banks do the job that they're supposed to do.
And preventing other robo signing scandal right we learned that the hard way that.
They shouldn't need all of these extra revenue dollars.
Well I I think you have to have.
Revenues to produce earnings and you look at where you're seeing the foreclosures are at or near foreclosed homes -- shadow inventory.
It's my belief the -- need to see an organic answer for the housing issues tonight I'm really and they can't that I don't believe.
Many of these government programs are gonna help people by lowering their interest rates if you have a lower interest -- it doesn't help somebody who lost their job.
Is underwater on their house or -- that any money coming in they're the principal is that you they can't make the mortgage payment anyways.
Reducing it from 4% to 3% is not gonna change yeah.
And I think -- program at where they're buying the banks or vice city right there by now mortgages and exchanging her we -- letting the homeowner rent the house is is that an idea.
It's interesting I wanna see networks out -- would love to see that work but you know -- offset the look at the underlying fees you know Citigroup.
What they want to do is they want to keep people in the house and if you have somebody that's essentially renting it -- they get this was.
You know essentially indeed for -- idea I don't think that's yet to be proven through I tell you this that's not a reason to buy the stock I mean if somebody says I wanna lower mortgage rate I would check -- credit unions are super regional banks people they know their customers better.
I would avoid the big conglomerates that really frankly -- they don't know the customers well.
It to assert its that you're just a number two on I would go down to the micro level you may have a relationship with the lender verses you're just a number but Citigroup Bank of America these bigger banks they have bigger issues -- -- -- bigger inventories Avago more regional if you wanna lower interest -- Analysis and advice from Matt McCormick thank you for -- times are.
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