| NEW YORK, April 14
NEW YORK, April 14 After having to stomach $31
billion worth of bitter mortgage settlements with government
agencies a few years ago, JPMorgan Chase & Co swore off
a huge swath of the home loan market.
Gone were borrowers with anything much less than pristine
credit ratings. The cost of managing delinquent accounts and the
threat of huge legal penalties were written off as not worth the
risk. Better instead to focus on wealthier customers who wanted
jumbo-sized loans that are beyond the reach of government
housing finance agencies.
But there was a problem: Chase was leaving behind many of
its mass market customers who were going to competitors for the
conventional and government-guaranteed loans they wanted.
Now, the bank’s management team, led by Chief Executive
Jamie Dimon, is working fiercely to change course – hoping to
not only bring back customers, but influence what could be a
reshaping of U.S. mortgage finance policy for the first time in
Customers will soon start seeing signs of this effort. Next
month, Chase plans to launch advertising featuring Drew and
Jonathan Scott, stars of the popular reality “Property Brothers”
shows. In addition to TV spots, the campaign will feature
cardboard cutouts of the telegenic twins in Chase branches.
Chase is also in the process of boosting its mortgage
lending force by 10 percent, upgrading its loan-making software
and jazzing up its smartphone app with more mortgage account
At the moment, fewer than one in 10 Chase customers with
home loans got them directly from Chase, a situation consumer
banking chief Gordon Smith recently described as "terrible."
“It is time to go after the opportunity we have with our own
customers,” Mike Weinbach, the bank's mortgage chief, said in a
recent interview with Reuters.
JPMorgan Chase is not the only major bank that is restless
after having stepped back from the U.S. mortgage market in the
aftermath of the housing crisis last decade. At Bank of America
Corp, executives say they are no more content with fewer
than two in 10 of their customers with mortgage loans having
borrowed from their bank.
Mortgage companies such as Quicken, Caliber and
loanDepot.com scooped up much of the business from battered
JPMorgan's $31 billion cost of 13 mortgage-related legal
settlements was second only to Bank of America’s $71 billion,
according to data collected by bank analysts at Keefe, Bruyette
Still, JPMorgan's mortgage retreat stands out because the
bank has used its scale and financial strength to gobble up
market share in many other businesses, from credit cards and
deposit-taking to commercial lending and Wall Street banking.
In backing away, JPMorgan saw its market share of
conventional mortgages that are small enough to be resold to
government-sponsored enterprises (GSEs) Fannie Mae and Freddie
Mac fall by half, according to data from Inside Mortgage
Its share of all mortgage loans made directly by lenders
fell to 2.8 percent last year from 12.6 percent in 2011.
Logically, it should be close to Chase's 8.3 percent of share of
retail deposits, said Guy Cecala, CEO of Inside Mortgage
Chase opted to go after better-off borrowers who took out
so-called jumbo loans in excess of the Fannie and Freddie limit,
which then was $417,000 in most parts of the United States. Last
year, jumbos were 49 percent of all loans Chase made, up from 14
percent in 2013.
But jumbos account for only 18 percent of U.S. mortgages. By
turning from bigger parts of the market, JPMorgan was hurting
its wider consumer franchise.
That could be costly if it persists. Customers without Chase
mortgages are twice as likely to leave as those who have them
from the bank, Weinbach said. And, checking and savings account
customers who get their home loans from Chase tend to add to
Management’s effort to swing back may already be bearing
some fruit. JPMorgan said on Thursday that it made $9 billion of
home loans directly to customers in the first quarter, 3 percent
more than in the same period a year earlier.
Chase’s shift comes amid crosscurrents in the mortgage
market. The latest wave of loans for refinancing is abating as
interest rates rise. That has reduced revenue across the
But bank executives also see other conditions improving.
Federal housing agencies have been loosening policies to help
middle America get access to more credit. The millennial
generation has also begun reaching the nesting age, leading to a
new crop of home buyers.
The GSEs have already adjusted some rules to be less
financially threatening to lenders. For instance, they dropped a
demand that banks take back loans that default after three years
unless there has been fraud.
Dimon sees a chance to get more relief from the government.
This month he used four pages of his annual letter to
shareholders to outline more changes he wants to see. He
expressed particular concern about a bank’s costs and liability
when loans it underwrites default.
Current rules have made lenders so cautious that they have
not funded an additional $300 billion to $500 billion of loans
for home purchases in each of the last five years, JPMorgan
analysts estimate. The cost to the economy, they believe, has
been one third of a percentage point of annual growth.
“If that number is right, shame on us,” Dimon told reporters
on the bank's post-earnings conference call on Thursday. “We
should have done something about that. And, it can be done very
(Reporting by David Henry in New York; Editing by Bill Rigby)