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Chase CEO opines on the mortgage crisis and the future of housing

In his own words, the CEO of JP Morgan Chase explains the bank’s role in the mortgage crisis and what he forecasts as a positive future for mortgage and housing. It is of note that the bank continues to see themselves in a light of being one of the better behaved entities.

A CEO’s personal position

Jamie Dimon, CEO of JP Morgan Chase, the largest bank in America, has sent a 38 page letter1 to shareholders explaining his personal take on earnings, the mortgage crisis and his opinion on the real estate economy. In full detail, Dimon explains why mortgages stalled their profits and dives into how deep the mortgage crisis truly has been, wrapping up with notes on signs of improvement in housing – we offer highlights of the letter below.

A shortfall in profits

Dimon writes, “The main reason for the difference between what we are earning and what we should be earning continues to be high costs and losses in mortgage and mortgage-related issues. While these losses are increasingly less severe, they will still persist at elevated levels for a while longer.”

The extent of the crisis

The mortgage crisis has hit several sectors, particularly banking. Dimon opines, “Many of the financial crises of the past hundred years around the world were related to real estate. Real estate was not the only culprit in the recent crisis, but it certainly was at the eye of the storm. I suspect that the mortgage crisis will be the worst financial catastrophe of our lifetime. What the world experienced was almost a collective brain freeze…We need to write a letter to the next generation that says, ‘Never forget: 80% loan to value and verify appropriate income.’”

Dimon writes that “clearly, it was not our finest hour,” but adds that Chase was “one of the better actors in this situation – but not good enough; we made too many mistakes. We generally were a better underwriter. We did not originate option-ARMs. Many of our problems were inherited from Bear Stearns and WaMu. Even our subprime mortgages outperformed most other subprime mortgages. Early in the crisis, we also stopped dealing with mortgage brokers, some of whom underwrote the worst of the mortgages and probably missold mortgages more than most.”

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“But we did participate in this disaster by originating mortgages that wouldn’t have been given a decade earlier (and won’t be given a decade later),” said Dimon. “And when delinquencies and foreclosures grew dramatically, we were ill-prepared operationally to deal with the extraordinary volume of troubled mortgages and upset borrowers. Our servicing operations left a lot to be desired: There were too many paperwork errors, including affidavits that were improperly signed because the signers did not have personal knowledge about what was in the affidavits but, instead, relied on the company’s processes.”

The $25 billion mortgage settlement

The historic $25 billion mortgage settlement2 between the government (state and federal) and the five largest mortgage servicers, which according to Dimon has led to Chase agreeing to pay $1.1 billion in cash payments to 50 states, some of which will go to borrowers, $500 million to refinance underwater borrower, and $3.7 billion additional relief (principal reductions, short sale assistance, etc.). The banks have agreed to a set of enchanced standards for servicing, including contact requirements, staff training, and document execution.

Dimon notes, “The global settlement releases JPMorgan Chase from further claims related to servicing activities, including foreclosures and loss mitigation activities, certain origination activities and certain bankruptcy activities.”

Necessary reforms

Although Chase is often in the spotlight for wrongful foreclosures and misteps, Dimon advocates for “strong reform” in his letter. “JPMorgan Chase has consistently supported higher capital standards, more liquidity in the system, a Resolution Authority to better manage and unwind large financial firms, better regulation of the mortgage business, the clearing of standardized derivatives through wellstructured clearinghouses and even stronger consumer protection (however, we thought this should have been a strengthened department inside the bank regulator).”

Within Chase, Dimon says the company is doing the following to try to “properly and fairly deal with delinquencies, modifications and foreclosures:”

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  • If we treated a homeowner improperly, we should make it right.
  • If a homeowner can afford to pay the mortgage – whether or not the home is underwater – the mortgage should be paid. If a homeowner cannot afford the mortgage but can afford a reduced payment, we try to modify the loan. If a homeowner cannot afford the home, even with the modification, we still try to avoid foreclosure.
  • Foreclosure. While foreclosure is a terrible option, it sometimes is the only option. While it is awful for the homeowner, it does allow an individual to get a fresh start and more affordable housing – and relief from a crushing debt burden. Foreclosure is the worst option for the bank, too, because the house usually is left in poor condition and sold for substantially less than the outstanding balance on the loan, resulting in a loss.
  • Home equity loans generally are modified if we modify the mortgage loan and almost always are written off if there is a short sale or foreclosure.

Dimon writes, “This is a miserable situation all around, but we want our shareholders to know that we are trying to treat every borrower fairly and properly based on the individual’s situation and circumstances.”

Housing is improving

Although Dimon is harsh in his assessment of the mortgage crisis, it isn’t all doom and gloom. He writes, “Housing is getting better – there, I said it. However, if one looks at the leading indicators, all signs are flashing green – the turn is coming if it is not here already. We don’t want to be blindly optimistic, but the facts are the facts… More jobs, more households, more Americans, good value – it’s just a matter of time.”

“The mortgage business is important,” asserts Dimon, “that’s why we are going to stay in it.”

1Dimon’s 38-page letter to shareholders
2Details of the $25B mortgage settlement

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  1. Greg Cook

    April 7, 2012 at 11:20 am

    “Early in the crisis, we also stopped dealing with mortgage brokers, some of whom underwrote the worst of the mortgages”
    Oh Really? Since when did mortgage brokers start underwriting?

    • Attorney Wendy Alison Nora

      April 12, 2012 at 9:14 am

      Excellent point!

  2. Dean Burrows

    April 7, 2012 at 11:37 am

    Why isn’t this man in a prison work camp?

  3. Stan Brody

    April 7, 2012 at 12:40 pm

    Mr. Dimon’s “interview” demonstrates his utter denial of fact, rewriting of history and proof of just how disconnected he, the vast majority of the financial industry CEO’s truly are… anyone attempting to obtain any form of assistance for a client knows that his statements are, at best, a fraud…

    To cover up for the loan products and “underwriting guidelines” his bank created, like Secretary Clinton, Mr. Dimon points the finger at mortgage brokers for his greed and failure. A challenge for Mr. Dimon… find me ONE, only one, mortgage broker who created the sub-prime loan products that Chase/WaMu funded against and I’ll write out a $1,000 check in his name to the V Foundation for cancer Research… if he can’t, then let him have the decency (fat chance) and apologize for aiding and abetting in the decimation of an industry…

  4. Imaconfused

    April 10, 2012 at 2:14 pm

    I am currently battling with my bank over my mortgage and the fraud it that is at the core of it,but I also know that brokers and escrow and title companies played a huge role so don’t discount that it is valid and much of what he said is valid.That said it does not excuse the role of the Banks/servicers/”lenders” ,and it is criminal to take homes that they have no vested interest in for the sake of profits while turning a cheek to forged and fabricated documents and greed driven underwriting standards.So I think he has done a nice job rationalizing the bigger banks role in the subprime mortgage mess and I would agree chase is a tad bit [dont want to say better or more honest,that would just be BS]more willing to at least try to look better than the others, but what do you want, these guys have the full backing of the ..v.rnment while trying to push all this stuff under the rug and run there secret society at the same time.Thats a lot of work.SELL,SELL,SELL

  5. Attorney Wendy Alison Nora

    April 12, 2012 at 9:17 am

    Lack of personal knowledge and relying on company business records is the excuse for generic “robo-signing.” What is the excuse for forgery?

  6. Arielle Curtin

    May 10, 2012 at 6:32 pm

    “Personal take” indeed. Nice choice of words.


    May 10, 2012 at 6:32 pm

    Nice words, let’s see if it really translates into nice action.

  8. justanordinarygirl12

    July 1, 2012 at 11:48 am

    My husband and I have been through just about everything a marriage can endure. We have a blended family, suffered job loss, endured trials and tribulations, and genuine pain. Through it all, we stayed together for love. Our home, where we’ve raised our children, where we shared our first kiss, is evaporating before our eyes. We’ve lost three jobs in 5 years. We don’t buy toys, expensive vacations, or other frivolous items. We have invested our entire lives’ work into this home. Our home is where our heart is, where our children gather to feel safe, where all of our laughter and security lie. We have worked long hours, horribly stressful jobs and missed poignant times in our children’s lives just so we could remain in our home. Through it all, we don’t give up hope. We were raised old school. Dad worked, mom raised kids, and life was hard, but good. Pride in your home was your badge of hard working honor and payoff. Our situation has caused a loss of dignity and self-respect. My husband has lost his provider dignity in all of the financial misfortune. We have tried for over 3 years to modify our home loan with Chase. We are in a so-called trial period of a home loan modification that we have waited for for over 3 years to happen. Not a handout, just a break. Unfortunately, today, Saturday, June 30, was the last of the three installments to a trial period that could have possibly brought the relief we have so longed for. We tried to make the payment online, called the 800 number, and even went to a small branch in a grocery store that is open to customers for convenience on a Saturday. We were unable to secure the final payment and have realized, within the time zone difference of 10 minutes, we have lost the battle. It probably means very little to Chase. It probably means very little in the scheme of life and the injustices in all of humanity. But for us, in our world, it was devastating. I am thankful for our God, our faith, and our love. Without it, we would be another statistic. With it, we are survivors. Chase may have their corporate bonuses, their billions of government bailout money, and the last laugh. But that is okay. This was all predicted long ago and I have hope because I know that this is the beginning of the pangs of distress.My only wish now is that the persons involved in the deception can change their evil practices and repent before the deluge is upon them, for their time is only a short while longer.

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