Time to Fall Back in Love With Mortgage Banks: Analyst

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Once the dregs of the U.S. economy, mortgage banks are becoming more attractive as the home sector claws back from a depression and the Federal Reserve moves to buy mortgage-backed assets, an analyst said Monday.

This week, a few major banks will inaugurate the third quarter earnings season. Several of the institutions, such as banking giant JPMorgan Chase, are major players in the mortgage sector.

But the Fedis moving to flood mortgage markets with liquidity as part of its third round of massive bond buying known as quantitative easing, or QE3. That has one analyst lavishing praise on banks exposed to the once beaten down mortgage sector.

“Right now we love anything that’s exposed to mortgage banking, mortgage banking is probably the most profitable that it’s ever been, even back before the pre-crisis years,” Paul Miller, a bank analyst at FBR Capital Markets, told CNBC’s “Squawk on the Street” on Monday.

As consumers use the low interest-rate environment to refinance their mortgages, Miller cited Wells Fargo, BB&T and PNC Bank as being the names he saw as among those “that are going to do very well … over the next couple of quarters.”

He added: “We think this refi boom is not going to end until late 2013.”

Mortgage rates are now hovering near historically low levels, a dynamic that could persist in the short term, Miller added. “I wouldn’t be shocked to see mortgage rates down at 3 percent or below in the next quarter or two,” he said, noting that home sales “are probably not going to be as strong as they are today, but still at historical levels.”

Miller did warn, however, that the current refinancing boom didn’t necessarily benefit everyone. Banks are reluctant to deal with consumers whose credit scores fall below a certain threshold, Miller said.

Lending standards, he said, are “very tight,” which is creating a class of “serial refi-ers … people [refinancing] over and over again.”

—By CNBC.com’s Javier E. David

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Miller owns no shares in any of the companies listed above.