Even though JPMorgan Chase reported strong earnings for the fourth quarter, the hangover from the mortgage crisis and the resulting loan 'buy backs' forced on the company by Fannie Mae and Freddie Mac are continuing to hurt its bottom line.
In an earnings conference call Friday morning, chairman and CEO Jamie Dimon told analysts that repurchases are a worsening problem for the company and the industry at large.
He noted that "you can assume" purchase requests on broker-sourced loans "will be worse." He also signaled that buy backs have picked up in the mortgage industry as investors "assess their rights" and bring claims against lenders. However, he said he could not offer any "broad numbers" at this time.
A year ago, JPMorgan Chase said it would quit the residential wholesale channel but in recent quarters has still originated some loans using brokers. Part of JPMorgan Chase's mortgage woes are tied to Washington Mutual, the troubled Seattle thrift it purchased in the fall of 2008.
In the fourth quarter, JPMorgan Chase reported home equity net charge-offs of $1.2 billion compared to $770 million in the same period a year earlier. Subprime mortgage net charge-offs totaled $452 million (giving it a net charge off rate of 14.01% in this category) compared to $319 million in Q4 08. Prime mortgage net charge-offs were $568 million (a 3.81% net charge-off rate) compared to $195 million in the comparable period.
JPMorgan Chase, as a whole, earned $3.3 billion but its retail financial services unit lost $399 million. The company cited "lower MSR [mortgage servicing rights] risk management results and an increase in reserves for the repurchase of previously-sold loans."