Refinancing boom augurs well for earnings

I suggested recently that banks may be poised to provide some upside surprises when it comes to mortgage-related business.

The consumer activity so far this year has been really intriguing, at the refinancing level but also at the purchases level. Could this be the big story, for consumer banks anyway, when second quarter earnings are released?

Bloomberg weighs in with a closer look at the wave of refinancings we're seeing. Refinancings "probably rose 4.2 percent to $275 billion in the quarter ended last week, the bankers group forecast, three months after saying the boom was over. About 5.6 million loans will be refinanced this year."

The mini-boom will have an outsized impact on consumer-oriented banks that have remained committed to the market. Wells Fargo is certainly poised to benefit, as is JPMorgan Chase. In fact, JPMorgan analysts said this month that Wells Fargo stock is their "best idea" among large U.S. banks, in part because of its "strong mortgage- origination revenues."

Certainly government programs are making a difference, notably the HARP. Wide spreads have been a windfall as well. The bottom line is that low interest rates are not necessarily a lose-lose for consumer banks. It will be interesting to see how all this shakes out in terms of earnings. Relatively speaking, banks without consumer mortgage operations might be in line as the losers in all this.

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