Smarting over Fines, Chase will Reduce FHA Lending

JP Morgan Chase appears to be questioningrnthe wisdom of remaining an FHA lender.   The company’s Chairman and CEO, Jamie Dimon, maderncritical comments about the FHA program during a conference call on Tuesdayrnaccompanying release of its 2^nd quarter financial report.  </p

In February, Chase reached a<bsettlement with FHA and the Department of Justice in the amount of $614rnmillion.  The government claimed that thernbank had improperly approved FHA-insured loans that did not meet the agency’s underwritingrnstandards. </p

Dimon said that the FHA program is<bimportant to first-time buyers but while the company wants to help in thatrnarea, “we can’t do it at great risk to JP Morgan.”</p

His concerns over FHA appear to bernonly a small piece of a shift in the bank’s attitude toward mortgagernlending.  The company originated $16.8rnbillion in residential loans during the second quarter, 1 percent belowrnoriginations in Q1 but off two-thirds from the second quarter of 2013 accordingrnto Chief Financial Officer Marianne Lake.  The company’s market share was down to 8.1rnpercent in the first quarter from 11.1 percent a year earlier.  </p

Lake said the lower market share wasrndue to a decision to cut back on government loans to lower credit score andrnhigher loan-to-value segments of the market and to a reduction in refinancingrnactivity through the government HARP program. </p

The Chase executives indicated thatrnthey would no longer rely on the collateral of loans for recovery, even withrngovernment guarantees.  They are choosingrninstead to rely on the ability of borrowers to repay their loans.  Chase admitted to losing its share of therngovernment guaranteed sector but said it is doing so deliberately.  </p

Dimon seemed especially sour on FHArnlending.  “Until they come up with arnsafe harbor or something, we are going to be very, very cautious in that linernof business,” he said.  Later inrnanswer to a reporter’s question he said it was the reps and warrants that wererna concern.  Problems should be settled asrna commercial dispute, he said “so we don’t get hit with triple damages everyrntime something goes wrong.”</p

The bank reported higher secondrnquarter earnings than expected, a profit of $6 billion or $1.46 a sharerncompared to $6.5 billion, or $1.60 a share, a year earlier. Revenue was down 3%rnto $24.45 billion unadjusted and 2.3% on an adjusted basis to $25.35 billion. Thernfigures included .13 per share in legal expenses. </p

Income from mortgage banking wasrn$709 million compared to $114 million in first quarter and $1.14 billion a yearrnearlier.  Mortgage production pretaxrnincome totaled $63 million due to a repurchase reserve release of $137 million.rnIn the second quarter, Chase reported a $74 million loss on mortgage productionrnin the second quarter following a $58 million loss in the first.  The company said it expects to post a loss inrnits mortgage business for the entire year.  

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