JPMorgan Chase & Co., one of the nation's largest mortgage lenders, is threatening to stop originating mortgages insured by the Federal Housing Administration.
JPMorgan, the second-largest securitizer of FHA loans, recently paid more than $600 million in federal fines for originating $200 million in flawed FHA loans that were later found out not to meet underwriting requirements. The bank's CEO, Jamie Dimon, is asking FHA to issue clearer rules of when the government will hand down such penalties. Without such rules in place, Dimon said JPMorgan would consider getting out of the FHA mortgage originating business altogether.
Lobbying for FHA
"The real question to me is, should we be in the FHA business at all?" Dimon said during a conference call last week. "And we're still struggling with that."
JPMorgan is already greatly reducing its FHA lending and its purchases of FHA mortgages for securities, according to Inside Mortgage Finance data.
"There should be a commercial resolution of this dispute, where you don't have triple damages if something goes wrong," Dimon said during last week's call. He urged the FHA to come up with "some real bright lines that make it easy for us to try to do what the government wants us to do."
Some housing analysts are skeptical that Dimon's threat will stick, since banks are usually under pressure to issue FHA mortgages to help meet federal laws requiring them to serve minority and low-income borrowers, Bloomberg reports.
"My guess is that it's probably gotten people's attention that he signaled that maybe he's had enough," Brian Montgomery, former FHA commissioner and vice chairman of the Collingwood Group in Washington, told Bloomberg. "I suspect that every one of his competitors feels the same."
Many mortgages originated during the housing bubble turned sour, and the Department of Justice has been issuing penalties to banks who approved loans for borrowers with missing or falsified documents of their incomes and other qualifications. The high number of loan defaults prompted the FHA to take out a $1.7 billion taxpayer bailout, its first ever in its 80-year history.
But lenders argue the penalties have been excessive and inconsistent. So far, banks have settled about $4 billion in claims with the federal government over FHA and other government-insured loans, Montgomery estimates.
"There are egregious violations, and there are minor technical foot faults, and both of those can cause a triple-damage claim by the DOJ," says David H. Stevens, president of the Mortgage Bankers Association. He also served as FHA commissioner from 2009 to 2011. "Without getting that balance back into play, we're going to be continuing to face an overly tight credit market."
