Wells Fargo, US Bancorp to get Q3 mortgage boost

A pair of recent analyst reports paints a bullish housing picture.

By TheStreet Staff Sep 26, 2012 12:21PM

TheStreet.com logoHome under construction, copyright CorbisBy Dan Freed

 

Wells Fargo (WFC) and US Bancorp (USB) are among banks expected to benefit from a strong quarter of mortgage banking revenues, as federal stimulus and rising asset values continue to boost results.

 

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.

 

Rochdale Securities analyst Richard Bove argues the biggest beneficiaries will be Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo and US Bancorp.

 

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

0Comments

DATA PROVIDERS

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.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
265
265 rated 2
429
429 rated 3
612
612 rated 4
499
499 rated 5
525
525 rated 6
701
701 rated 7
533
533 rated 8
337
337 rated 9
131
131 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

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.