Who’s Vilifying Who, Mr. Dimon?

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In a speech to the US Chamber of Commerce, Jamie Dimon, CEO of JP Morgan Chase made a statement that caused my jaw to drop.  From Bloomberg:

"My biggest mistake, probably of my whole career, was not closing down our mortgage broker business sooner." 

He says that mortgage broker business had a loss rate two to three times higher than loans originated directly by the bank.

Here is what you need to know:

  • Mortgage brokers originate mortgages.
  • Banks, like Chase, underwrite and fund these mortgages.  They also create many of mortgage programs that are not performing today.   In fact one program that Chase had "back in the day" allowed 103% loan to value for credit scores above 700.  Chase was also big into second mortgages up to 100% loan to value.  Banks also employ(ed) heavily incentized wholesale reps to call on mortgage brokers–begging for loans to be sent to them. 

So if a mortgage broker takes a loan application and submits the loan to Chase, it is Chase who makes the decision on whether or not the loan is acceptable to approve and fund.   If JPMorgan Chase suffered double or triple the losses on loans provided to them by mortgage brokers, it was Chase's wholesale division (for mortgage brokers) that was the real issue with exception to cases of pure fraud.

Locally we had a classic example that made the front page of the Seattle Times.  The report claims that six immigrants (one is a hot dog vendor) were prequalified to purchase Bellevue high-end condominium units with the developer's preferred lender, JP Morgan Chase Bank.  There's a lawsuit pending over the lost earnest monies of $174,050.

"In one case, the lawsuit says, a Chase broker listed a prospective buyer's income not at the actual $2,147 a month, but at $12,500. Chase's underwriter "red flagged" the document as suspicious, the suit alleges, but the applicant still was prequalified for a $724,000 condo…."

Note: I contacted writer of the Seattle Time's article to ask she correct the term "broker"…the correct term in the above paragraph would be "loan originator" or they often like to call themselves banker/broker or bankers

And…

"Other plaintiffs are…Diana Shakhnazaryan…and her mother, Svetlana Kocharyan, both of whom fled Azerbaijan and gained political asylum here about 10 years ago. In 2006, Kocharyan worked on an assembly line and her daughter had a part-time job washing hair in a Kirkland beauty salon. Together, they made $3,659 a month, court documents say.

Chase prequalified them for a 95 percent mortgage for the purchase of a $922,600 condominium, giving them a $7,198 monthly payment, including condo dues."

In the same article, luxurious Bellevue Towers preferred lender, JP Morgan Chase, approved a student with an income of $3,600 a year and says he was told he prequalified for a $634,000 condominium.

Back to Jamie's presentation yesterday…in one breath, Jamie Dimon says:

"When I hear of constant vilification of corporate America, I personally don't understand it…I would ask a lot of our folks in government to stop doing it because I think it's hurting our country."

And then he turns around and vilifies mortgage brokers just a few moments later. 

Fact is, now that Chase has purchased WaMU, they don't need mortgage brokers anymore.  They have plenty of exposure with Washington Mutual's existing locations.  Banks, like Chase, have used mortgage brokers as their sales force and now with their massive market-share, they just don't need them anymore.  But why wrongly tar an industry…I thought we were beyond that…at least I believed Jamie Dimon was. 

I'll wrap this post up with another quote from Jamie yesterday:

"If we act like a dysfunctional family and we don't finish these things and we're forever debating them, I think this will go on for several years."

Well that's one point I can agree with, Mr. Dimon.  Why can't we all just get along?   

Comments

  1. Rhonda,

    I couldn’t agree with you more!

    When non-prime/non-conforming loans roamed on everybody’s ratesheets, it was the LENDERS, not the brokers who constantly loosened guidelines to outcompete their competitors. Customers needed brokers just to filter through the thousands of programs and lenders to find what they were looking for.

    Maybe the answer Mr. Dimon should’ve gave was , “I wish were smart enough to not follow all of our competition and make products that didn’t make sense, in retail or wholesale.” However, that would make way too much sense.

    Keane

  2. Keane, I’m really disappointed with Jamie Dimon’s remarks about mortgage brokers yesterday. He was someone that I respected…now he’s sounding like the rest of them. Reminds of Killinger, the former CEO of WaMU when he accused mortgage brokers of being unsavory and that every loan brokered to WaMU would have a WaMU LO contact the client to make sure the loan was acceptable. Excuse me? Was WaMU not the one of the grand-daddy’s of the option arm/pick-a-payment?

    Now Chase has those programs…I wonder where the losses are coming from.

  3. Rhonda, as you know escrow and title people obtain copious numbers of payoff statements from lenders every day.

    Chase is one of the very largest lenders in the universe etc…

    I find it incredibly arrogant that Dimon comments in the manner he does and then while I’m ordering payoff statements from Chase I hear from the automated Chase payoff dept, “….if you’re calling about President Obama’s new programs etc…and oh, please be careful about those firms offering mortgage modifications….” I just laugh and think to myself, you morons created and peddled the very junk to the public that you are trying to stave off more losses from.

  4. My point exactly, Tim. I heard that a big part of why Chase cut out mortgage brokers a while back is because they do not have the staff to take care of their retail and broker business. Once the refi boom hit earlier this year, they were inundated…Chase is the worst at processing subordination agreements (it’s taking MONTHS)…so they cut out the mortgage brokers (while retaining some correspondent lending relationships). They underwrite and fund mortgage broker business (not correspondent) so by eliminating the broker relationship, they helped relieve the “bottleneck” they were experience with their service. It’s the perfect time to blame the mortgage broker…heck, everyone else is doing it…I guess that makes it okay.

    It’s truly a shame because mortgage brokers keep the mortgage arena competitive. Without mortgage brokers and correspondent lenders, consumers will only have a couple large banks and credit unions to go to for their financing.

    Lack of competition is always bad for the consumer.

  5. Rhonda – you are right to insist on accountability and a spirit of cooperation – thanks for these poignant examples.

  6. Rhonda – Well articulated!

  7. Serious Mortgage Professional says:

    What he really means is he never got “wholesale right”, i believe they never got it right..or we’re never fully committed to it..he’s just not man enough to own up to it..Take accountability for your operation Mr.Dimon.
    Mortgage Brokers do NOT underwrite or approve loans, in case you forgot how it works..

  8. When it comes to dysfunctional families, one of the biggest problems is members not admitting their own faults. It seems that everyone wants to point the blame at others and absolve themselves of wrong doing. What a shame! The independent is harmed 🙁

  9. Some brokers hire 1099 LOs who are largely unsupervised. However, Chase is not looking so good in this story when we see how their staff blew it.

    We would expect the banks to kick the brokers to the curb in this market.

    When the market shifts, the banks will once again open wholesale and welcome the brokers.

    The question then becomes…..will the brokers go back to Chase in the future?

    I’m betting “yes.”

  10. Jillayne,

    At this time, Chase is still working with Correspondent Lenders, like Mortgage Master, who have more “skin in the game”.

    If a competitor to Chase, who did not burn brokers, is offering the same pricing, I’m sure a broker of this era WILL remember.

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