JPMorgan Chase’s bombshell announcement – mortgage division winding down?

Chase bank projection in Fulton Market, Chicago. Photo by Seth Anderson.

Washington Mutual and JPMorgan Chase

In 2008, the Federal Deposit Insurance Corporation (FDIC) seized Washington Mutual Bank (WaMu), then facilitated its sale to JPMorgan Chase.

Since the sale, the economic crash has deepened and endless lawsuits from individuals, state agencies and federal agencies, putting banks like Chase at the center of investigations and lawsuits. Chase was most recently sued for reporting to credit agencies that one of their live mortgage holders was dead, allegedly destroying her credit, and in April, the bank settled a class action suit by military homeowners for $48 million due to illegal foreclosures. The bank has even attracted an advocacy group that came to their corporate headquarters and performed an exorcism.

Mortgage division winding down over time? Not exactly.

In June, Chase ejected their head of home lending for the bank’s tarnished record. The Seattle Times is reporting that Chase CEO Jamie Dimon stated today that they are winding down their $154 billion mortgage portfolio, reducing its size by 10-15% per year until it gets “close to zero.”

Fifty states attorneys general have named JPMorgan Chase and numerous other banks as the center of their mortgage probes, which Dimon stated he would prefer to settle now rather than over the years it will likely take as each state probes individually with separate penalties.

Without naming any specific incidents, Dimon affirms the many errors made in the mortgage division that has led to the paced reduction of their portfolio.

The biggest drag on the bank has been WaMu

Despite errors, it appears that the biggest drag on the bank has been the acquisition of WaMu and their portfolio. On an industry call, Dimon reported that WaMu mortgages account for 10% of the current Chase portfolio. The bank has set aside $4.91 billion of its $28.5 billion loan-loss allowance specifically for WaMu loans, a disproportionate amount to the small percentage of the Chase portfolio it accounts for.

Chase holds $69 billion in former WaMu loans, and 26.2% of those are 30 days or more past due whereas Chase’s loans are barely at 6% delinquent, a major disconnect between the two portfolios despite sharing an umbrella. Dimon’s demeanor was no longer snide as it have been in the past, and although not exactly dripping in humility, it is clear that the undoing of the entire portfolio is what Dimon sees as the bank’s way to stay afloat.

More regulations are on the way and in one week, we have seen MetLife opt to shut down their retail bank and JPMorgan Chase shut down their mortgage portfolio. Time will tell if more divisions, portfolios or banks will wind down as investigations and regulations are enforced.

Chase weighs in on their big picture

Christine Holevas of Chase’s Media & Communications division said in a statement to AGBeat, “Our owned portfolio is approx $220billion and a lot of that are products that we no longer use – the option ARMs, subprime, high CLTV home equity lines, etc. That is what Jamie and others have said we are winding down. However that does not mean we are ending our mortgage division – far from it.”

“We continue to provide customers with traditional home lending products – 15yr, 30yr fixed, some ARMs and home equity loans – however, those are products that are then sold to Fannie, Freddie, FHA, VA, so they don’t stay in our owned portfolio. We do keep jumbo loans, but the volume of those compared to conforming loans is very small. That’s why we say that our mortgage holdings will be ‘almost nothing,’” Holevas added.

Further, Holevas told us, “We will continue to originate new mortgages and home equity products, in addition to our home loan servicing business. In fact, during the past 18 months we have hired more home loan officers, put them in our branches across the country and in markets that we don’t have a branch presence.” [July 28, 3:08PM]