June 18, 2018

JPMorgan Treading More Cautiously with Mortgages

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JPMorgan Treading More Cautiously with Mortgages

The nation’s second-largest mortgage lender, JPMorgan Chase & Co., says it’s backing away from issuing mortgages to less creditworthy borrowers due to growing concerns the bank will be able to recover much money if it needs to foreclose on the home, Reuters reports.

The bank is taking a more cautious approach in reducing the chances of having to foreclose on a loan, showing more reluctance than other banks by refusing to rely on government loan guarantees and insurance.

Credit Where Credit Is Due

"The cost to take a customer through the foreclosure process is just astronomical now," Kevin Watters, chief executive of JPMorgan Chase's residential mortgage banking business in New York, told Reuters.

On average, it can take 572 days – or more than 1.5 years – to foreclose on a home, according to first-quarter data from RealtyTrac.

If other lenders follow JPMorgan’s lead, it could become more difficult for people to secure financing to buy homes, despite government programs that are in place to help credit flow to these borrowers, Christopher Mayer, a professor of real estate finance at Columbia University, told Reuters.

"This could reduce the number of first-time buyers and slow the speed with which people who lost their homes during the crisis can become home owners again," Mayer says.

However, some lenders in recent months have lowered their underwriting standards and even are issuing subprime loans again in trying to court the home purchase market, at a time when their refinancing business has dramatically slowed due to higher interest rates.

JPMorgan announced a $74 million loss from issuing mortgages in the second quarter compared with $566 million of income at the same time last year.

JPMorgan officials say it may take them until 2015 to fully implement their new mortgage strategy. But they do plan to pull back from making loans under the Federal Housing Administration program, a mortgage program that helps first-time home owners make smaller down payments.

But the bank says it isn’t shrinking its jumbo-mortgage originations, which tend to go to wealthier borrowers who have more assets to pay off the loans. Jumbo loans are those that are $417,000 and higher in most parts of the country; in some of the most expensive markets, jumbo loans reach $625,500 or more. JPMorgan company executives say that JPMorgan has been trying to undercut the competition on prices for loans to nab a bigger share of the jumbo business from its competitors.

Source: “JPMorgan Pulls Back From Mortgage Lending on Foreclosure Worries,” Reuters (July 15, 2014)