JPM: Ruling Could Disrupt PA Mortgage Market

The Pennsylvania Supreme Court needs to reconsider its decision involving bailee letters (used to facilitate sales of residential loans) in order to avoid disruption in the state's mortgage market, according to warehouse lender JPMorgan Chase Bank.Over 50% of all U.S. residential loans are shipped under a bailee letter, the New York bank says in an amicus brief on behalf of a defunct Los Angeles-based warehouse lender, Pioneer Commercial Lending Corp. Bailee letters protect a lender's ownership in loans that are being shopped to potential investors. In the Pioneer case, the purchaser erred by wiring the funds to an account of the wrong lender, which CoreStates Bank used to cover overdrafts by that lender. "The decision has effectively elevated the behavior of one party over the plain terms of the contract ... and creates the danger that lenders cannot protect themselves against potential purchasers that take liberties with the documents," the amicus brief says. The brief discloses that Pioneer has a $5 million loan from JPMorgan Chase Bank that is secured by the litigation.