At a time when smaller banks are easing underwriting guidelines to deal with flagging mortgage demand, JP Morgan Chase seems to be taking a step back.
During the second quarter, the New York City-based bank and lender only mustered $16.8 billion in mortgage origination volume, though they weren’t necessarily shooting for higher numbers.
That represented a decline of 1% from the first quarter of 2014 and a whopping 66% drop from the prior year. Of course, every lender saw year-over-year numbers fall significantly, seeing that mortgage rates were at record lows back then.
However, the bank did manage to improve mortgage application volume in the latest quarter, with apps rising to $30.1 billion, down 54% from a year earlier but up 15% from the first quarter.
Chase has been the second largest mortgage lender in the nation, though far behind leader Wells Fargo and its $47 billion in residential mortgage originations during Q2.
If numbers keep slipping, it could find itself in the third spot, with rival Quicken Loans making up ground and showing no signs of letting up, what with all their contests going on.
Chase Is Trying to Cut Its Mortgage Losses
So why is Chase not interested in mortgages anymore? Well, apparently they’re just fine tuning what they want to originate.
During the second quarter earnings conference call yesterday, Chase CEO Jamie Dimon expressed frustration that the bank had to settle with the FHA in February for $614 million because loans supposedly weren’t eligible for the agency’s insurance coverage.
He even questioned whether the bank should be originating FHA loans, though he stopped short of banishing the loans completely, likely because they serve the underserved and it doesn’t look too good when a megabank doesn’t play nice.
Per Reuters, the bank’s FHA loan share fell to just 1.7% in April, compared with 3.1% for all of 2013, according to numbers from Inside Mortgage Finance.
In other words, they are not your go-to FHA loan lender (perhaps Carrington is a better option). And part of the reason has to do with losses, especially on high-LTV, low credit score loans that the FHA is famous for.
Chase’s residential mortgage banking business boss Kevin Watters explained to Reuters that sending a borrower into foreclosure is a losing proposition for the bank.
And if government agencies like the FHA don’t actually provide protection in the case of default, the bank will lose its rear end on such loans.
So to limit losses, the best way is to up underwriting requirements, meaning fewer or no low credit score and high-LTV loans.
Instead, Chase seems to be focusing on the jumbo loan market, which generally entails lending to high-net worth individuals that are a very low default risk.
Sure, they might have to keep the loans on their books, but it’s better than having to deal with buyback and fines.
By the way, Chase actually lost $74 million on mortgages in the second quarter, whereas a year ago they realized a tidy profit of $566 million.
Not much incentive to originate these days, that is, unless you can bring in a customer with a lot of money and cross-promote other products.
At the moment, Chase seems to be more interested in marketing credit cards and bank accounts than mortgages.
Long story short, there could be a new #2 mortgage lender in the not-too-distant future. They’ve held the second spot since the third quarter of 2011 and seem to be in great danger of losing it, whether they actually care or not.