Citing the difficulty of the “the average American” to get a home loan, JPMorgan Chase Chairman and CEO Jamie Dimon on Tuesday called on regulators to overhaul many of the mortgage rules put in place after the financial crisis.
Speaking at a town hall event in Washington, Dimon said that post-crisis regulations have made mortgages too costly for consumers — and made homeownership unattainable for borrowers with low incomes or blemished credit histories.
Dimon said consumer protection rules adopted after the subprime meltdown have encouraged banks to lend almost exclusively to pristine borrowers. Banks have passed along to borrowers the higher cost of servicing loans, and have also pulled back from making Federal Housing Administration loans for fear of being sued if they don't follow strict underwriting guidelines.
Banks and other mortgage originators “won’t make mortgages to the following because they are too risky: first-time buyers, the young, immigrant, the self-employed,” Dimon said.
He added that many borrowers who have defaulted in the past did so as a result of death, divorce, disease, or loss of job and deserve another shot from the industry.
“Most people with prior defaults in life are legitimate,” he said. “Of course you should give those people a second chance, but not if you have a huge litigation risk.”
His comments, in some ways, echoed the concerns voiced earlier in the day by Bank of America CEO Brian Moynihan. During an event sponsored by The Washington Post, Moynihan said that regulatory requirements surrounding mortgage and small-business lending have been a drag on the economy.
M&T Bank Chairman and CEO Robert Wilmers raised similar concerns in his annual letter to shareholders last month. He also expressed frustration that banks are losing market share in mortgage lending to nonbanks that “have capitalized fully on the cost advantage resulting from their lesser regulatory burden.”
Dimon made his comments at an event for business students held just a few hours after the release of his annual letter to shareholders. While he said much of the regulatory response to the financial crisis was appropriate, he said he believes mortgage rules in particular have had “adverse consequences” on the economy.
He cited a study from JPMorgan economists that said post-crisis rules have reduced mortgage originations by more than $300 billion, roughly 20% of which might have financed new homes that would need to be built. “By any estimate, this could have had a significant impact on the growth of jobs and gross domestic product,” his letter said.
Among his key policy proposals for improving the housing market is relaxing FHA rules. Many banks have backed away from FHA lending in recent years out of fear that if they fail to follow the FHA’s underwriting the Justice Department will sue them for violating the False Claims Act. Policymakers should make it clear that the False Claims Act should be used only to penalize “intentional fraud” rather than “immaterial or unintentional errors," Dimon wrote.
“There are significant opportunities to make simple changes that can have a dramatic impact on improving the current state of the home lending industry — this will make access to good and affordable mortgages much more achievable for far more Americans,” he wrote.
Additionally, Dimon called on regulators to adopt a uniform national standard for mortgage servicing to replace the current patchwork of requirements from state and federal agencies. The cost of servicing a mortgage that has even a “modest” probability of defaulting has skyrocketed in recent years, he said.
“The U.S. Treasury is well positioned to lead key players in the mortgage industry,” including the Consumer Financial Protection Bureau and other federal agencies, to create a national standard, he said.
At various points in the letter, and in the Tuesday town hall, Dimon emphasized that his policy recommendations are aimed at creating jobs, boosting homeownership and improving the overall economy, not benefiting JPMorgan and other banks.
Policymakers “should be thinking about it not because it’s good for JPMorgan Chase, but because it’s good for the average American,” Dimon said at the town hall.