JPMorgan Chase Rebuffs FHA Lending

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Federal Housing Administration mortgages no longer make good business for JPMorgan.

The largest U.S. bank has agreed to a $600 million settlement in litigation due to defective mortgages for the Department of Veterans Affairs and FHA. As a consequence, in the second quarter of the year, JPMorgan decreased their originations of FHA-guaranteed loans.

In a conference call discussion of the bank’s second-quarter results, chief executive officer of JPMorgan Jamie Dimon announced a “very, very cautious” approach in regard to FHA and VA loans.

According to the bank official, the very collaboration with the Federal Housing Administration is now being questioned if acceptable or not. JPMorgan runs too great risks from being in the same boat with the FHA.

A $614 million settlement was approved by JPMorgan Chase to pay for the claims made by the Department of Justice and the FHA that some of the FHA-insured loans originated by JPMorgan did not comply with the agency’s underwriting requirements.

In comparison with the first quarter, JPMorgan Chase’s overall originations were flat as the giant bank shifted focus to retail lending.

Chief Financial Officer Marianne Lake complained that Chase fell off originations, which means that it loses some share in the market.

Figures show $16.8 billion in mortgage originations during the second quarter, which is 1% down from the prior quarter and two-thirds less than a year earlier. Jumbo originations accounted for $3.6 billion of the total.

The loss in the market share is due to Chase’s decision of reducing participation in high loan-to-value government loans and in lower FICO score mortgages. The “burn out” in the Home Affordable Refinancing Program also contributed to the loss. JPMorgan has been selling Ginnie Mae mortgage-backed securities.

The financial giant did not compromise on the pricing for the required returns, maintaining the set discipline. Price competition thus further contributed to a loss of market share in other conventional loans.

The mortgage banking income for the second quarter significantly increased from $114 million to $709 million. However, the total is a lot lower than the $1.14 billion amount from a year earlier.

In the second quarter, JPMorgan totaled $63 million in mortgage production pretax income, mainly because of a $137 million repurchase reserve release. A $58 million loss on loan production was reported by Chase, in the first quarter.

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