JPMorgan Chase saw its mortgage-related revenue get hammered in the first quarter, falling a stunning 75% to $696 million (compared to 4Q), as originations declined and the firm focused resources on its massive servicing portfolio and dealing with legal issues tied to that business.
Among other items, JPM booked a $1.1 billion charge for what it called "the impact of increased servicing costs" tied to the fair value of its MSRs. (JPM is the nation's third largest residential servicer, behind Bank of America and Wells Fargo. The mortgage division's revenues are lumped in with auto and "other consumer lending" but residential accounts for the lion's share of the numbers.)
In a conference call Wednesday morning to discuss 1Q results, company officials noted that it expects to receive, today, a consent order from the Comptroller of the Currency and the Federal Reserve that will move to resolve issues tied to its servicing and foreclosure practices.
Although JPM's residential mortgage unit took in $696 million in revenue, it suffered $2.1 billion in non-interest expenses.
The bank said the charges in the mortgage unit include a $1.1 billion hit for credit losses; the $1.1 billion writedown on MSRs; a $650 million expense for "the estimated costs of foreclosure related matters"; and repurchase requests valued at $420 million. (All totaled these charges come to $3.09 billion. No explanation was provided whether double counting is involved.)
"These costs are our best current estimate for affidavit related delays as well as certain legal expenses," said CFO Doug Braunstein during the call. "We don't view these costs as run-rate expenses."
But the CFO added that, "there can clearly be further costs associated with these foreclosure and affidavit issues before we're finished." JPM chairman and CEO Jamie Dimon chimed in: "And it does not include any related penalties."
In 1Q JPM's residential mortgage business posted a net loss of $937 million compared to a $577 million profit in 4Q. In 1Q 2010 the mortgage business earned $257 million.
Despite the huge charge for mortgages, JPM, company-wide, posted a net profit of $5.6 billion in the quarter, driven mostly by its investment banking business.
