By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Despite all the obvious signs of a healthy housing recovery that’s underway this spring season, first-quarter earnings from mortgage banking dropped at two of the nation’s largest banks, Wells Fargo and JPMorgan Chase.

The news stories around the earnings have been mostly void of alarmist talk, though, pointing out that underlying strengths in housing demand are still enough to keep momentum going as expected this year.

Rather, the drop in mortgage revenue at the two top banks is more a natural progression away from the refinance loan volume each has enjoyed over the past year. According to Inside Mortgage Finance, the mortgage-banking operations of U.S. banks showed profits of $31.9 billion last year, about six times the amount in 2011.

Wells Fargo, which now makes nearly one-in-three new home loans in the U.S., made $16 billion fewer new home loans in the first quarter compared to the last three months of 2012. The bank said income from that business declined 2.7% in the first quarter.

Meanwhile, it’s a similar – if not more severe – story at JPMorgan Chase, which said mortgage profits fell 31% in the first quarter.

What is going on here? Is it time to sound the alarm for the end of the housing recovery?

Not at all.

Executives at each of the banks prior to earnings reports said that they expected mortgage originations to soften, so it wasn’t a big surprise. We all know that many markets are still suffering to bring their heads up from the harsh fall of the downturn. And we all know that many more are experiencing healthy price increases, propped up by increasing demand from buyers and a lack of inventory.

The home loan landscape has changed drastically since the height of the last housing boom. Many more regulations have gone into effect; banks are stricter about documentation and credit qualifications. But ultimately, these are good things. Even if it means lending may be slower in our recovery now and going forward.

And both of the top executives of the two banks championed an optimistic outlook for housing for the next few quarters. Wells Fargo CEO John Stumpf said the bank’s near-term outlook sees a steady gain in home sales.

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