JP Morgan Chase appears to be questioning
the wisdom of remaining an FHA lender. The company's Chairman and CEO, Jamie Dimon, made
critical comments about the FHA program during a conference call on Tuesday
accompanying release of its 2nd quarter financial report.
In February, Chase reached a
settlement with FHA and the Department of Justice in the amount of $614
million. The government claimed that the
bank had improperly approved FHA-insured loans that did not meet the agency's underwriting
Dimon said that the FHA program is
important to first-time buyers but while the company wants to help in that
area, "we can't do it at great risk to JP Morgan."
His concerns over FHA appear to be
only a small piece of a shift in the bank's attitude toward mortgage
lending. The company originated $16.8
billion in residential loans during the second quarter, 1 percent below
originations in Q1 but off two-thirds from the second quarter of 2013 according
to Chief Financial Officer Marianne Lake. The company's market share was down to 8.1
percent in the first quarter from 11.1 percent a year earlier.
Lake said the lower market share was
due to a decision to cut back on government loans to lower credit score and
higher loan-to-value segments of the market and to a reduction in refinancing
activity through the government HARP program.
The Chase executives indicated that
they would no longer rely on the collateral of loans for recovery, even with
government guarantees. They are choosing
instead to rely on the ability of borrowers to repay their loans. Chase admitted to losing its share of the
government guaranteed sector but said it is doing so deliberately.
Dimon seemed especially sour on FHA
lending. "Until they come up with a
safe harbor or something, we are going to be very, very cautious in that line
of business," he said. Later in
answer to a reporter's question he said it was the reps and warrants that were
a concern. Problems should be settled as
a commercial dispute, he said "so we don't get hit with triple damages every
time something goes wrong."
The bank reported higher second
quarter earnings than expected, a profit of $6 billion or $1.46 a share
compared to $6.5 billion, or $1.60 a share, a year earlier. Revenue was down 3%
to $24.45 billion unadjusted and 2.3% on an adjusted basis to $25.35 billion. The
figures included .13 per share in legal expenses.
Income from mortgage banking was
$709 million compared to $114 million in first quarter and $1.14 billion a year
earlier. Mortgage production pretax
income totaled $63 million due to a repurchase reserve release of $137 million.
In the second quarter, Chase reported a $74 million loss on mortgage production
in the second quarter following a $58 million loss in the first. The company said it expects to post a loss in
its mortgage business for the entire year.