Rising interest rates and a still slow housing recovery have some of the nation's largest banks reporting huge drops in residential mortgage originations. Both Wells Fargo and JP Morgan Chase saw originations plummet in the fourth quarter of 2013, down 60 percent and 54 percent respectively from a year ago.
"These guys are stuck with a lot of liquidity and not a lot of loan growth," said FBR analyst Paul Miller in an interview on CNBC.
Barely an hour after the two banks reported their quarterly earnings, the Mortgage Bankers Association lowered its mortgage origination forecast for 2014 by $57 billion to $1.12 trillion for the year.
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"Despite an economic outlook of steady growth and a recovering job market, mortgage applications have been decreasing—likely due to a combination of rising rates and regulatory implementation, specifically the new Qualified Mortgage Rule," said Mike Fratantoni, chief economist for MBA in a release.
The bulk of the drop is in refinance applications, expected to drop 60 percent in 2014 from 2013; rates are now well over a full percentage point higher than they were in the spring of 2013 and are expected to hit or even surpass 5 percent on the 30-year fixed conforming mortgage in 2014. The MBA, however, also lowered its expectations on purchase originations to $677 billion for 2014, compared to $711 billion forecast previously. That is still an increase of 3.8 percent from a year ago.
(Read more: How weak job participation rips the housing recovery)While home prices and mortgage delinquencies have improved, allowing the big banks to release some of their loan loss reserves, too much of today's housing market is still fueled by cash. All-cash sales comprised 32 percent of transactions in November, according to the National Association of Realtors, up from both the previous month and the previous year. This as new mortgage rules that went into effect January 10th may make it harder for some borrowers to qualify for a loan.
(Read more: Mortgage refinances bounce back as rates settle)