Jamie Dimon Really Doesn't Like FHA Lending

"Until they come up with a safe harbor or something, we are going to be very, very cautious in that line of business," JPMorgan CEO Jamie Dimon says of FHA mortgages.

JPMorgan Chase (JPM) has soured on Federal Housing Administration lending.

Litigation brought by the government for delivering defective loans to the FHA and the Department of Veterans Affairs has cost the country's largest bank $600 million. JPMorgan reduced its originations of mortgages guaranteed by the FHA in the second quarter.

"Until they come up with a safe harbor or something, we are going to be very, very cautious in that line of business," Dimon said Tuesday morning during a conference call to discuss the bank's second-quarter results.

"The real question for me is should we be in the FHA business at all," he said. "We want to help there but we can't do it at great risk to JPMorgan."

In February, Chase agreed to pay $614 million to settle claims by FHA and the Department of Justice that it improperly approved FHA-insured loans that did not meet the agency's underwriting standards.

JPMorgan Chase's overall originations were flat compared to the first quarter as the giant bank continued to focus on retail lending.

Chase "lagged the market in originations, which shows we continue to lose some share," said Chief Financial Officer Marianne Lake.

The company originated $16.8 billion in residential loans in the second quarter, down 1% from the prior quarter and off two-thirds from a year earlier. Jumbo originations totaled $3.6 billion.

Lake attributed the loss in market share to Chase's decision to reduce its participation in lower FICO score and high loan-to-value government loans along with the "burn out" in Home Affordable Refinancing Program activity. Chase has been selling Ginnie Mae mortgage-backed securities, she said.

"In addition, we did lose share in other conventional loans resulting from price competition as we maintained discipline regarding pricing for our required returns," Lake said.

Mortgage banking income totaled $709 million, up from $114 million in the prior quarter, but down from $1.14 billion a year earlier.

Second-quarter mortgage production pretax income totaled $63 million due to a repurchase reserve release of $137 million. In the first quarter, Chase reported a $58 million loss on mortgage production. 

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Comments (8)
Mr. Diamon was guilty of putting too many commercial bankers over in Chase Mortgage upon his arrival from the Bank One marriage. People who knew nothing about Mortgage Lending. They drove their experts out the door. From October 2007 until 2009, close to 90% of Chase's Top Originators left the company along with of the high quality operations people. The fact is he does not understand mortgage lending and has decided to get out. That is best for them as if they manufacture broken loans with poor service, they are best served to buy loans/customers from other lenders. Then they can peddle their other products.
Posted by Dennis D | Tuesday, July 22 2014 at 9:00AM ET
The secondary market predicates what they want to accept. If they did not accept the BS the lender wouldn't sell the BS and the brokers would not have an avenue to push the loan. Typically the corruption starts at the top and we all know &%it rolls down hill.
Posted by tony r | Sunday, July 20 2014 at 9:49PM ET
$614M is a joke and an insult. It does not surprise me that Mr.Dimond believes the best way to redeem and grow his company is reward himself in spades over making tens of thousands more home and small business loans. Where was Mr.Dimond's acumen when Chase was writing liar loans and pushing them off to the secondary market. Focusing on the short term is not sustainable. The strength of the American Economy has always been a substantial middle class. High risk stock markets allowed speculative industry to grow with investors money. Glass Stiegel assured that Banks focused on lending and growing their communities with a focus on the long view. In spite of the spectacular damage that allowing banks to engage in high risk investment banking territory brought, we continue to subsidize their folly.
Posted by Jan H | Friday, July 18 2014 at 11:03AM ET
I'd thought he'd be quite as a church mouse after the whole bailout event.
Posted by john w | Wednesday, July 16 2014 at 2:39AM ET
Don't deliver defective loans then. The market will absorb the work. Bank employees need to be required to complete the same training and testing that every other broker lender has to go through.
Posted by Rolando T | Tuesday, July 15 2014 at 5:39PM ET
Mr. Dimon, why don't you just tell us what you really mean? Our underwriters really don't know how to follow FHA guidelines, and it would cost us too much money to train them. When asked about the financial crisis, he explained that it was the fault of the mortgage brokers giving them bad loans, so that is why they got out of wholesale lending. What he didn't say was that those loans were approved by THEIR underwriters, not the mortgage brokers! He also did not mention that Chase was one of the biggest sub-prime lenders out there. Don't blame others for your problems Mr. Dimon. Get your own house in order by training your employees the RIGHT WAY and stop hurting America's citizens just so you can make a buck. With Chase having it's worst year under Dimon in 2013, it must be nice to get a 74% pay raise.
Posted by Bob B | Tuesday, July 15 2014 at 2:13PM ET
And he is SO astute and responsible as a CEO (*cough*London Whale *cough).
Posted by joe@pfscalifornia.com | Tuesday, July 15 2014 at 1:01PM ET
Mr Dimon is spot on. It takes quite a bit of dedication to training AND training the right personnel to run a high quality FHA/VA lending operation from front-to-back.........and then there's the internal quality control function that must be totally independent and empowered and, dare I say, well staffed.
Posted by john D | Tuesday, July 15 2014 at 12:36PM ET
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