"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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