Bank of America  investors who trusted Brian Moynihan and held on to their shares through 2012 are undoubtedly pleased with the 100%-plus share price appreciation. Rightfully so: Moynihan has been praised for his ability to navigate a legal minefield, divest non-core businesses, and build industry-leading capital ratios. However, B of A’s inactivity in the consumer mortgage origination business in 2012 highlights Moynihan’s lack of operational prowess.

Wrong place, wrong time
In 2012, domestic mortgage origination volume grew a staggering 30% to over $1.8 trillion, primarily due to consumers refinancing homes as housing prices improved and interest rates remained at historical lows. In addition to shuffling his management team in late 2011 and retreating from the bank’s now-infamous $5 debit card fee decision, Moynihan chose to exit the corresponding mortgage lending space, a business in which typically small lenders sell loans to larger lenders. Because of changing capital rules, the correspondent business increased risk-weighted assets during a time when Bank of America desperately needed to show improved liquidity ratios. While it may have been a necessary decision for B of A management to make, correspondent lending accounted for roughly 50% its mortgage lending business, and the exit drastically reduced the bank’s presence in the market.

Ready, aim, originate
Unlike their Charlotte, North Carolina-based rival, Wells Fargo  and JPMorgan Chase  entered 2012 well-positioned to handle the tidal wave of refinancing activity. Wells Fargo burst out of the gate and generated $2.9 billion in mortgage banking non-interest income in the first quarter, a 21% increase from just the previous quarter. Although JPMorgan Chase did not experience the same immediate rush of refinance activity, in the second quarter, origination volume jumped 14% as business in its retail channels surged, a coveted transaction Moynihan hopes to achieve with his bank’s affluent client base. Adding to the joy of these two mortgage behemoths was the lack of competition because of the decimation of lenders after the housing crash. Not only were Wells Fargo and JPMorgan seeing record volumes, they were also seeing increased pricing power!

Source: Quarterly press releases.

Better late than never?
While its competitors raked in the mortgage fees, Bank of America’s mortgage executive, Barbara Desoer, retired in February after a sequence of reduced responsibilities, and B of A’s second-quarter mortgage origination volume decreased 6.8%. While Moynihan and team may have lacked the foresight to ramp up mortgage operation during the first half of the year, they were not ignorant to the environment. After aggressively bolstering operations, they saw third- and fourth-quarter origination volumes increase 43% and 25%, respectively. However, shareholders should value a CEO who is proactive, not reactive.

Source: Quarterly press releases.

As you can see in the above graph, Wells Fargo and JPMorgan Chase saw a relatively stable level of origination volume throughout 2012, thus avoiding the costs of suddenly increasing operations like Bank of America. Although it’s only one quarter of data, the decline …read more
Source: FULL ARTICLE at DailyFinance