Jamie Dimon Really Doesn't Like FHA Lending

JUL 15, 2014 11:34am ET
Comments (8)

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. 

Comments (8)
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
And he is SO astute and responsible as a CEO (*cough*London Whale *cough).
Posted by Joe P | Tuesday, July 15 2014 at 1:01PM 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
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
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
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