As housing sales slow, fewer people look for new mortgages.  Bank profits took their first hit in this slowing market last quarter.  Citigroup, J.P. Morgan Chase, Wells Fargo and Wachovia all reported falling mortgage sales.

Citigroup said sales declined in its U.S. consumer lending business because of reduced mortgage servicing revenues and the reduction in gains on the sale of real estate loans.  CFO Sallie Krawcheck told analysts that the bank is selling off its fixed-rate mortgages and holding onto variable rate mortgages.

J.P. Morgan Chase reported its net income from mortgage banking dropped from $139 million to $39 million.

Wells Fargo reported its home-mortgage revenue dropped to $853 million from $1.5 billion.

Wachovia reported 14% revenue growth in its General Bank unit, but said there was slowing growth in its home equity lines.

The Mortgage Bankers Association (MBA) predicts a 7% to 8% drop in home sales this year.  It also believes new mortgages and refinancings could drop 14%.  MBA reported a decrease in mortgage applications of 1.7% for the week ended April 14 compared to the prior week.