JPMorgan pulls back from mortgage lending on foreclosure worries
By David Henry
NEW YORK (Reuters) - JPMorgan Chase & Co, the second-largest U.S. mortgage lender, is backing away from making home loans to less creditworthy borrowers after losing faith in its ability to recover much money from foreclosing on homes, even with government guarantees.
The shift reflects a change in the way JPMorgan runs its mortgage business: while it used to regard collateral and U.S. government lending programs as key backstops to most of its loans, it now pays closer attention to the credit quality of borrowers. The bank wants to reduce the chances of having to foreclose on a loan, because it's bad business.
"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 in an interview.
In addition to federal standards, states, and in some cases local governments, have written their own rules making it more expensive for banks to recover loan losses, he said. According to foreclosure data firm RealtyTrac, it took an average of 120 days to foreclose on a home at the beginning of 2007, just as the housing bubble was starting to burst. In the first quarter of 2014, it took 572 days, or more than 1.5 years.
Lenders have generally been paying more attention to borrowers' credit quality since the financial crisis, but JPMorgan is going a step further in its reluctance to rely on government loan guarantees and insurance.
If other lenders choose the same path as JPMorgan, it could become more difficult for people to secure financing to buy homes, even though government programs are intended to help credit flow to these borrowers, said Christopher Mayer, a professor of real estate finance at Columbia University.
"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 homeowners again," said Mayer.
For now, JPMorgan is taking a different path from smaller competitors, many of which have lowered their underwriting standards. Some lenders, particularly those that aren't banks, are increasingly willing to make subprime loans. Continued...