Many of Wall Street's biggest banks are beating profit expectations as the mortgage business comes back.
Many of Wall Street's biggest banks are beating profit expectations as the mortgage business comes back. - 
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Some of Wall Street’s biggest banks reported earnings today before the market open.

JPMorgan reported record income of $21 billion for the year ending December 2012. Its fourth-quarter 2012 earnings of $1.39-per-share topped market expectations of $1.16 per share.

Investment bank Goldman Sachs also reported soaring profits: $34 billion for full-year 2012; $5.60-per-share for the fourth quarter. The consensus expectation was for $3.78-per-share.

2012 was a pretty good year for banks—especially by comparison with a lackluster 2011. Historically low interest rates generated a lot of fees for mortgage lenders, says banking analyst Erik Oja at Standard & Poor’s.

“2012 had a huge mortgage refinancing boom that really helped to kick up revenues,” Oja says.

As mortgage refinancing tapers off, the housing market itself finally appears to be picking up. People are moving out of rentals or their parents' houses and buying first homes, and they're trading up as their families and incomes grow. And they all need new mortgages. Rising home prices in many markets around the country mean homeowners can finally start to sell homes that have been underwater; and clearing out of the inventory of foreclosed homes generates even more business. 

Oja says recent multi-billion-dollar multi-bank settlements over bad loans that went to Fannie Mae during the housing boom, and bad foreclosures done during the housing bust, are helping to clear the financial decks for the industry.

“Even though it’s expensive [for banks] to settle, it clears away a lot of the uncertainty,” says Oja. “And it helps the securitization market to pick up again as well. That’ll help the mortgage market and housing growth.”

Oja says, clear away uncertainty about the federal budget and debt ceiling, and bank lending to consumers and businesses could really take off.

Follow Mitchell Hartman at @entrepreneurguy