Banks profiting from low home loan rates

Low interest rates are increasing mortgage profits for U.S. banks, analysts say. Mortgage bankers know they're making big gains from home loans but say they can't afford to cut, blaming tougher regulations for higher expenses, The New York Times reported Thursday. "There is a much higher cost to originating mortgages relative to a few years ago," said Jay Brinkmann, chief economist at the Mortgage Bankers Association. It's not the fees charged to consumers that's causing the revenue jump -- it's the role banks play as the middle man, the Times said. Banks make money from bundling mortgages into bonds they sell to investors, such as pensions and mutual funds. Mortgage lenders also may benefit from less competition caused by the financial crisis of 2008, which led to mortgage lending being concentrated among few big banks, mainly Wells Fargo, JPMorgan Chase, Bank of America and U.S. Bancorp, the Times said. Wells Fargo reported $4.8 billion in revenue from its mortgage origination business in the first six months of the year, a 155 percent increase from $1.9 billion in for the same time period last year, the Times said. JPMorgan Chase and U.S. Bancorp also reported high levels of mortgage origination revenue but the totals weren't reported. "Fewer players in the mortgage origination business means higher profit margins for the remaining ones," said Stijn Van Nieuwerburgh, director of the Center for Real Estate Finance Research at New York University. Banks say they need the revenue to cover new costs resulting from more stringent conditions since the housing collapse. Among other things, banks are required to be more diligent in approving loan applications, which they say means better-trained employees and other added expenses.