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Smarting over Fines, Chase will Reduce FHA Lending
Posted to: MND NewsWire
Tuesday, July 15, 2014 5:07 PM

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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 standards.

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.  

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