Jumping and Leading with JPMorgan

by Mark Johnston

JP Morgan Chase reported a massive 67 per cent increase in their earning for the first quarter of this year but the issues within their home lending sector continue to weigh them down and cause some concern.

Since 2007, when the credit crisis began, JP Morgan has racked up more than $20 billion in losses in residential letting, including $1 billion in this first quarter.

Bank officials within the organization have conceded that matters are likely to get worse in the private lending mortgage unit and blamed the stagnant mortgage lending market for these issues.  JP Morgan, even with this issue, has turned in a first quarter profit margin of $5.6 billion which included the release of $2 billion they held to cover the credit card losses offsetting the mortgage market issues.

David Trone, from JP Morgan said “There just is not enough economic strength to fuel loan growth,” David Trone, a banking analyst at JMP Securities, said. “That traditional part of banking is just very stagnant.”

Nevertheless, analysts from both sides of the Atlantic will be pouring over JP Morgan’s results and looking for similar thinking and results from the other large banks as they all start to deliver their first quarter profit results into the public domain.

The bank is still doing all the right things even as they loose significant revenue through tighter regulations, for example, no longer being able to draw on the lucrative and now publicly unfair charges associated with over draft fees.  JP Morgan saw a dip of 8 per cent in their revenue and sighted changing regulatory landscape as one of their biggest challenges. 

Chase Home Lending, JP Morgan’s mortgage unit, took a big step forward the other day in an effort to close the chapter on their loan servicing operation.  Chase Home Lending have created a specific sector to manage troubled mortgage borrowers and ensure strength in their internal controls.  With a massive injection of $1.1 billion in the first quarter and near 3000 staff, there is hope that the problems faces last year during the spate of foreclosures can be managed better into the future. 

Jamie Dimon, Chairman and Chief Executive at JP Morgan also invested in new management structures to support the staff, funding and new approach to their mortgage operations.  “We are adding a lot of intensive manpower and talent to fix the problems of the past,”

JPMorgan Chase & Co. will begin to pay for the errors it made when it processed foreclosures when households defaulted on loans.  Jamie Dimon, Chairman and Chief Executive Officer said that the processing errors were made while processing paperwork on foreclosures. 

At a recent conference, Dimon said to the Council of Instatutional Investors in Washington that “some of the mistakes were egregious and they’re embarrassing”.  Forcing his hand even further is the recent Florida lawsuit that revealed that bank officials had gone ahead and signed foreclosure affidavits without reading and verifying the accuracy of the documents.  The bank now faces extra legal and regulatory hurdles after this revelation.

Insiders on the case have said that there are already agreements being struck up with the federal regulators to improve the procedures.  Regulators and the State Attorneys General are trying to improve the codes of practice and industry standards while at the same time considering monetary fines.

Dimon said “We made a mistake, they were signing it based upon what they were told, not based upon checking the note file, checking the loan file,” Dimon said. “But the actual information in the affidavit was 99.5 percent accurate. We’re not foreclosing on people who we shouldn’t foreclose on. But we made a mistake, and we’re going to pay for that mistake.”

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