Report
Michael Driscoll ...
  • Rebecca Clarke

U.S. Residential Mortgage Market: Market Structure and Regulations Likely Keep Risks Low for U.S. Banks

This commentary reviews the U.S. Residential Mortgage Market and its associated risks for U.S. Banks. Housing prices in the U.S. have appreciated sharply in recent years aided by historically low borrowing costs prevalent during the early stages of the pandemic.

Key highlights include:
• Strong U.S. home price appreciation was fueled by high demand during the pandemic from low-interest rates and more workplace flexibility that allowed employees to work from home.
• The U.S. mortgage market is dominated by longer-term, usually 30-year, mortgages with fixed interest rates for the life of the loan. Borrowers have the option to refinance to lower rates if these emerge.
• U.S. first-lien mortgages have consistently performed well in DFAST stress testing that incorporate high unemployment levels and large home price declines. In the stress scenario, these mortgages have the lowest losses overall in bank loan portfolios.

"The performance of first-lien residential mortgages, home equity loans, and lines of credit portfolios in the stress tests generally, and in each year since 2018, has shown that these loans are among the lowest credit risks for U.S. banks, because of guarantees on credit performance from the GSEs and in part due to lower, fixed rate, consistent costs for borrowers over the terms of loans. In the most recent stress tests, banks also benefited from higher recovery values on residential mortgage loans due to appreciation in house prices in recent years" said Rebecca Clarke, Vice President - Global FIG.
Underlyings
BANK OF AMERICA CORP

Bank of America is a bank and a financial holding company. Through its subsidiaries, the company provides a range of banking, investing, asset management and other financial and risk management products and services. The company's segments include: Consumer Banking, which provides credit, banking and investment products and services; Global Wealth & Investment Management, which provides investment management, brokerage, banking and retirement products; Global Banking, which provides lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services; and Global Markets, which provides sales and trading services and research services.

BANK OF AMERICA CORP GDR

Bank of America Corp. Dep. Pfd. (Rep. 1/1000th Interest in a share of 6.204% Non-Cum Pfd Series D)

Bank of America Corp. Dep. Shs (Rep. 1/1200th interest of a share of Fltg Rate Non-Cum Pfd Series 4)

Bank of America Corp. Dep. Shs (Rep. 1/1200th interest of a share of Non-Cum Pfd Series 5)

Bank of America Dep. Shs (Rep. 1/1000th Interest in a share of Non-Cum Pfd Series E)

Bank of New York Mellon Corporation

Bank of New York Mellon divides its businesses into two business segments, Investment Services and Investment Management. The company also has an Other segment, which includes the leasing portfolio, corporate treasury activities, derivatives and other trading activity, corporate and bank-owned life insurance, renewable energy investments and business exits. The company's two principal United States banking subsidiaries engage in trust and custody activities, investment management services, banking services and various securities-related activities. The company has four other United States bank and/or trust company subsidiaries concentrating on trust products and services across the United States.

Capital One Financial Corporation

Capital One Financial is a financial services holding company. Through its subsidiaries, the company provides an array of financial products and services. The company's segments are: Credit Card, which consists of the company's domestic consumer and small business card lending, and international card businesses in Canada and the United Kingdom.; Consumer Banking, which consists of the company's deposit gathering and lending activities for consumers and small businesses, and national auto lending; and Commercial Banking, which consists of the company's lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers.

Citigroup Inc

Citigroup Inc

CITIGROUP INC Pfd.

Citigroup Inc.

Citigroup is a financial services holding company whose businesses provide consumers, corporations, governments and institutions with a range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. The company operates via two primary business segments: Global Consumer Banking, which provides banking services to retail customers through retail banking, Citi-branded cards and Citi retail services; and Institutional Clients Group, which includes banking and markets and securities services.

GOLDMAN SACHS GROUP

Goldman Sachs Group Inc

Goldman Sachs Group, Inc., The

JPMorgan Chase & Co.

JPMorgan Chase is a financial holding company. Through its subsidiaries, the company's segments include: Consumer and Community Banking, which provides services through bank branches, ATMs, digital (including mobile and online) and telephone banking; Corporate and Investment Bank, which consists of Banking and Markets and Securities Services, provides a suite of investment banking, market-making, prime brokerage, and treasury and securities products and services; Commercial Banking, which provides financial solutions, including lending, treasury services, investment banking and asset management products; and Asset and Wealth Management, which is engaged in investment and wealth management.

Morgan Stanley

Morgan Stanley

MORGAN STANLEY

Morgan Stanley

Northern Trust - Pref

Northern Trust Corporation

Northern Trust is a financial holding company. Through its subsidiaries, including The Northern Trust Company, the company provides wealth management, asset servicing, asset management and banking solutions. The company focuses on managing and servicing client assets through two segments: Corporate and Institutional Services, which provides asset servicing and related services to corporate and public retirement funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional investors; and Wealth Management, which focuses on individuals and families, business owners, executives, retirees, and privately-held businesses in its target markets.

PNC Financial Services Group Inc.

PNC Financial Services Group is a bank holding company. The company has businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing its products and services nationally. The company's segments are: Retail Banking, which provides deposit, lending, brokerage, insurance services, investment management and cash management products and services; Corporate and Institutional Banking, which provides lending, treasury management, and capital markets-related products and services; Asset Management Group, which provides personal wealth management; and BlackRock, which provides a range of investment and technology services.

PNC Financial Services Group Inc Pfd.

REGIONS FINANCIAL CORP

Regions Financial Corporation

Regions Financial is a banking holding company. Through its subsidiaries, the company has the following segments: Corporate Bank, which represents its commercial banking functions including commercial and industrial, commercial real estate and investor real estate lending; Consumer Bank, which represents its branch network, including consumer banking products and services related to residential first mortgages, home equity lines and loans, branch small business loans, indirect loans, consumer credit cards and other consumer loans; and Wealth Management, which provides credit related products, trust and investment management, asset management, retirement and savings solutions and estate planning.

STATE STR ADR

State Street Corp

STATE STREET CORP

State Street Corporation

State Street is a financial holding company. Through its subsidiaries, the company provides a range of financial products and services to institutional investors. The company's clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. The company's Investment Servicing line of business performs custody and related functions, such as providing institutional investors with clearing, settlement and payment services. The company's Investment Management line of business, through State Street Global Advisors, provides a range of investment management strategies and products for its clients.

Truist Financial Corporation

Truist Financial Corporation

BB&T is a financial holding company. Through its bank subsidiary, Branch Banking and Trust Company, the company provides banking services to individuals, businesses and municipalities. The company provides loans and lease financing, including commercial and residential mortgages; permanent commercial real estate financing arrangements; loan servicing for third-party investors; direct consumer finance loans to individuals; credit card lending; automobile financing; and equipment financing. The company also provides other services, including deposits; discount and brokerage, annuities and mutual funds; life insurance, property and casualty insurance, health insurance and commercial general liability insurance.

U.S. Bancorp

U.S. Bancorp

U.S. Bancorp

U.S. Bancorp is a multi-state financial services holding company. Through its subsidiaries, the company provides a range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. The company also engages in credit card services, merchant and ATM processing, mortgage banking, insurance, brokerage and leasing. The company's subsidiary, U.S. Bank National Association, is engaged in the general banking business, principally in domestic markets. The company's bank and trust subsidiaries provide a range of asset management and fiduciary services for individuals, estates, foundations, business corporations and charitable organizations.

U.S. Bancorp Pfd.

US Bancorp

Wells Fargo & Co

Wells Fargo & Co

Wells Fargo & Co

Wells Fargo & Co

Wells Fargo & Co

Wells Fargo & Co.

Wells Fargo & Company

Wells Fargo & Company is a financial and a bank holding company. Through its subsidiaries, the company provides banking, investment and mortgage products and services, as well as consumer and commercial finance. The company provides consumer financial products and services including checking and savings accounts, credit and debit cards, and automobile, student, mortgage and home equity and small business lending, as well as financial planning, private banking, investment management, and fiduciary services. The company also provides financial solutions including commercial loans and lines of credit, letters of credit, asset-based lending, trade financing, treasury management, and investment banking services.

WELLS FARGO ADR

WELLS FARGO CO Pfd.

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Analysts
Michael Driscoll

Rebecca Clarke

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