“Because of these significant issues, we are intensely reviewing our role in originating, servicing and holding mortgages,” he wrote in his letter to shareholders last April. “The odds are increasing that we will need to materially change our mortgage strategy going forward.”

More Business

Despite the increasing complexity and cost, banks have historically justified staying in home lending, saying it brings in other business.

Signs of a turnaround have come as a surprise to people internally, who, as late as last year, expected origination to remain unprofitable into 2020. At last year’s investor day, Mike Weinbach, the unit’s CEO at the time, said a smaller origination market and increased digitization had put pressure on margins and raised the cost of originating loans.

“In light of this challenging environment, we’re being intentional in our positioning across the business,” said Weinbach, who’d run the business since 2016 and left last month for a job at competitor Wells Fargo & Co. He was replaced by Mark O’Donovan.

A year later, executives are basing their expectations on cost cuts and optimism that the lowest mortgage rates in three years will spur more homeowners to refinance, a trend that buoyed earnings in last year’s second half, the people said. Banks’ origination businesses tend to benefit when rates go down, while their servicing operations do better when rates go up. The two are seen as hedges against each other.

Volume Rises

Marianne Lake, who’s been overseeing all of consumer lending since May, has been imparting a simple strategy to middle managers: cut costs and sell more home loans to customers who already have a primary banking relationship with the bank, according to people familiar with the strategy.

JPMorgan originated $51 billion of home loans through its retail channel last year, an increase of 33% and the first time since 2016 volume has risen. Including mortgages through correspondent channels, in which the bank buys loans from other lenders, the total rose 32% to $105.2 billion.

Still, its market share of originations is anemic for the nation’s biggest bank, amounting to just 5% in the past quarter, according to data compiled by Bloomberg. That compares with a peak of 25% in 2006.