Fitch Ratings is worried that JPMorgan Chase could be overwhelmed by future mortgage repurchase requests from investors in the secondary market, namely Fannie Mae and Freddie Mac.
Although Fitch affirmed the bank's ratings Wednesday and called its outlook stable, it also noted that JPM has set aside more than $2.3 billion in reserves for representations and warranties (which is approximately 79% of pending requests), a level that is more than double that of other large banks.
A spokesman for the bank had no comment.
"Still, charges associated with future requests could be meaningful," Fitch said. Fitch added that JPM faces significant litigation risk, even with another $2.3 billion set aside to deal with these issues.
"Lastly, but perhaps most importantly, JPM faces reputation risk," the rating agency noted. "Much of its success during the past several years can be attributed to having avoided some of the more problematic activities leading to the financial crisis and thus became the institution to which customers flocked when there was a flight to quality. Anything that tarnishes JPM's image would likely result in a diminution of this competitive advantage," Fitch said.
Among residential servicers, Chase Home Finance, ranks third nationwide with $1.35 trillion in receivables at June 30, according to figures compiled by National Mortgage News and the Quarterly Data Report.
