JPMorgan Chase & Co., Bank of America Corp., Well Fargo & Co. and U.S. Bancorp reported $24.4 billion from mortgage lending in 2012, along with expenses of more than $21.7 billion for loan repurchases and settlements, according to data compiled by Bloomberg.

Loan originations totaled $1.75 trillion last year, the highest since 2009, according to the Mortgage Bankers Association. For all the money the government is collecting from banks tied to the worst housing slump since the Great Depression, lenders continue to make record profits as a result of policies that are driving the accelerating rebound.

Last year, banks made record earnings from mortgages as they were able to lend at rates higher than the bonds they were packaged into. Even with elevated profit margins, mortgage rates fell to 3.4 percent last week from 4.74 percent two years ago.

Faulty mortgages cost five banks - Wells Fargo, Bank of America, JPMorgan, Citigroup and Ally Financial Inc. - an estimated $84 billion since 2007, according to data compiled by Bloomberg. In the second half, the four largest mortgage lenders reported about $16 billion of added costs.

Wells Fargo has gained the most from a robust mortgage market. The largest U.S. home lender originated nearly 1 in 3 mortgages as of September and reported a 24 percent rise in fourth-quarter profit Jan. 11. Net gains on origination totaled $2.8 billion in the fourth quarter. In all of 2012, the firm recorded about $11.6 billion in mortgage banking income.

Mortgage banking could bring in another $10.9 billion this year, Chris Kotowski, a New York-based bank analyst with Oppenheimer & Co., estimated in a Dec. 20 report. The top four lenders, Wells Fargo, JPMorgan, U.S. Bancorp and Bank of America, will bring in $27.3 billion from mortgages this year, Kotowski projects.

Banks have counted on home lending to bolster earnings as low interest rates undercut net interest margins, a measure of profitability represented by the gap between what banks pay depositors and what’s earned on loans. The margin at the four largest lenders fell an average 0.20 percentage points in the fourth quarter over the year earlier, to 2.97 percent at the end of December, according to data compiled by Bloomberg.

While production may stay elevated in 2013, profits on home loans may shrink as minutes of the Fed’s December meeting, released Jan. 3, showed policy makers may end $85 billion monthly bond purchases this year. That could “spoil the party” for lenders that profited from a more than 20 percent jump in mortgage originations last year, according to Deutsche Bank AG.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry