Wells Fargo, US Bancorp to get Q3 mortgage boost
A pair of recent analyst reports paints a bullish housing picture.
By Dan Freed
Morgan Stanley analyst Betsy Graseck estimates mortgage revenues will rise 34% in the third quarter compared to the third quarter of 2011, though she believes it will be lower than the second quarter. She argues lower interest rates will stimulate refinancing activity.
She also sees continued benefits from a government refinancing program known as HARP 2.0, as well as strong gains for banks on the sale of assets.
Graseck recommends SunTrust Banks (STI), Wells Fargo and US Bancorp as the best way to invest in expected strong mortgage revenues since mortgage banking makes up the largest percentage of their overall revenues.
Bove argues the Federal Reserve's purchase of $40 billion worth of mortgage-backed securities will drive up MBS prices and cause money to flow into the banking system. That in turn will allow banks to originate mortgages very cheaply and sell them into the bond market at a healthy profit.
The only hitch, according to Bove, is that banks will be "hampered" in creating more new mortgages "because they have dismantled a large portion of the origination facilities that existed six years ago." That shortage of supply will allow the secondary market price of mortgages -- in other words the cost of buying them after they have been created--to remain high, Bove states in a report published Tuesday.
"Ultimately, the housing market will recover because there is pent-up demand due to population growth, the failure to replace dilapidated housing; and lower affordability costs. Following this, the economy should benefit and jobs will be created. This should work," Bove writes.
More from TheStreet.com
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These companies won't soar like other plays in the sector, but they make for great income sources.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.