Chase is Running From the FHA and Obama
Jamie Dimon is a big shark. He is the architect and mastermind behind the colossus known as JP Morgan Chase (JP Chase). A protégé of Sanford Weill (the gentleman who pieced together the megabank we now know as Citigroup), Mr. Dimon has put together his own megabank by assembling Bank One, Bear Stearns, and Washington Mutual into one large financial machine. He and his wife Judy are also big donors to the Democratic party.
In total, they have given over $500,000 to all of the Democratic heavyweights (Rahm, Hillary, Big Bill, Joe, Kerry, Schumer, Rangel and Chris Dodd). At the top of the Democratic food chain, Mr. Dimon was once chummy with President Obama. In 2008, he was considered Obama’s top pick for Treasury Secretary. CNN called him part of “Obama’s business brain trust.” Previously, Mr. Dimon called Mr. Obama’s Home Affordable Modification Program (HMAP) “good and strong, comprehensive and thoughtful.” However, things have changed. JP Morgan Chase has decided to pull back from FHA loans and Mr. Dimon attributed this change to the Obama Administration’s zeal for litigation.
JP Chase recently paid a $614 million settlement to the Federal government in a whistleblower probe and Mr. Dimon was flustered, as he commented “we are just thoroughly, thoroughly confused about how we got treated.” To Chase, the administration appears to want banks to ease up on lending guidelines, but its voracious appetite for litigation and settlements is ruffling feathers, bruising egos, and reducing consumer options along the way. Chase’s share of the low down payment, highly consumer friendly FHA product has fallen precipitously from 12.7% of FHA loan originations in 2013 to a dismal 2.3%. It’s FHA purchase business totaled only $606 million in the 2nd quarter of 2013 compared to a quarterly average of $4 billion. Talk about falling off of a proverbial financial cliff! Such sentiments have created waves across the financial spectrum as a whole.
Chase joins Bank of America, as one of the bulge bracket banks that will only provide FHA loans to pre-existing customers who already have accounts at the bank. Smaller financial institutional banks are taking notice. Many are considering scaling back from or discontinuing FHA lending as well. This is a shocking state of affairs. For many, the FHA is loan of last resort. If large institutions like Chase, BofA, Wells, and Citi feel that providing a product has too many legal pitfalls consequences, other banks will follow suit and pull back from that piece of the market as well. How sad it is when high-level politics infiltrates big business. However, in this case that appears to be exactly what has happened.
I cant imagine what would happen if the Big Five stopped originating FHA loans. They probably won’t completely give up on the business due to low income lending requirements that need to be met, but voluntary drawbacks send strong signals to the marketplace as a whole. You might not be worried about this, but I am. When large lenders pull back, we lose distribution options. Consumer perception about the product gets modified in a negative way and everyone loses. How does one’s brain trust become a chief chop buster? I think there is a lack of communication and a focus on catering to particular constituencies. Either way, Jamie Dimon and Barack Obama are in a contentious divorce and the children known as the American consumers are caught in the middle. Divorce between individuals, business partners, corporations or in this case heads of state is ugly and messy, and rarely ends with any clear winners. I personally see losers….on all sides.
Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance; he can be reached at firstname.lastname@example.org.