JPMorgan Chase is the Latest Lender to Scale Back Bad Credit Mortgage Loans
JPMorgan Chase & Co. is cutting its exposure to subprime or bad credit home loans amid deteriorating industry conditions that are proving troublesome to a growing group of lenders.
JPMorgan CEO James Dimon said in an investor presentation Tuesday that the company has sold off most of the mortgage loans it made last year to people with weak credit histories.
He said home mortgages are the one area of subprime lending where “we really see something taking place that looks like a recession,” the Bradenton Herald reported Wednesday afternoon.
While the New York-based bank continued to hold $13.2 billion in bad credit mortgage loans - making up 65 percent of its total subprime portfolio - as of the fourth quarter, that is down from $16.3 billion, or 72 percent of its total subprime portfolio, in the third quarter.
Its overall subprime lending portfolio - which, in addition to mortgages, includes credit cards, auto loans and home equity loans - shrank to $20 billion from $23 billion in the third quarter.
Meanwhile, JPMorgan has classified $4.5 billion of its subprime lending portfolio up for sale. The company says it expects them to be sold in the first half of the year.
JPMorgan said in the presentation that loss severity in bad credit home mortgages have started increasing, and that foreclosure rates of subprime loans originated last year are higher than the 2005 and 2004 vintages were at a comparable age.
In the fourth quarter, JPMorgan saw net charge-off rates on subprime home loans leap to 0.6 percent from 0.1 percent a year earlier.
When it released its fourth-quarter earnings earlier this month, JPMorgan boosted its provision for mortgage loan losses to $262 million from $158 million a year earlier, due in part to what the bank described as “some deterioration in subprime mortgage.”
With interest rates high and the housing market cooling, JPMorgan is hardly the only company struggling with subprime mortgages.
Last week, Wachovia shut down its EquiBanc Mortgage Corp. unit after a strategic review of its mortgage business which has altered the company’s approach to the origination of non-conforming loans.
Countrywide Mortgage, the nation’s largest mortgage lender, offered up a gloomy forecast when it announced fourth-quarter results Tuesday, citing continued credit deterioration in the entire mortgage industry.
Every day, it seems another home loan lender reports serious financial trouble or goes out of business. Dimon said JPMorgan won’t exit subprime lending, but is scaling back for now.