Chase Quietly Scaling Back Mortgage Lending

Posted on August 3rd, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Following in the footsteps of so many other mortgage-heavy banks, Chase is quietly scaling back their residential mortgage business chosing to rely more heavily on Fannie and Freddie. 

This is not the exception, this is the rule now. Mortgage lending choices have all but dried up and when that happens and fewer companies control more of the market, program variety, rates and ultimately the overall housing market will suffer as a result. The housing market can’t handle fewer loan choices right now, it needs to have expanded choices.

At this time, this story only surrounds the Chase wholesale (broker) business, but typically that is only where it starts.  Then, a few months down the line the banks do the same in their retail channel. Case in point recently is with SunTrust partially shutting down wholesale Hone Equity lending in May and the entire thing late in July.

During the bubble years, Chase was a formidable foe in retail, wholesale and correspondent mortgage lending.  It was a major Prime, Jumbo, Alt-A, Subprime and HELOC lender. And despite what people think, Chase has significant ‘at-risk’ on balance sheet residential mortgage loan exposure. 

For some reason Wall Street and the media at large do not think that Chase, Wells Fargo and US Bank did risky or exotic .  Nothing could be further from reality.  For example, other than agency loans that were sold off, portfolio subprime first and second mortgages were US Bank’s trademark with 100% CLTV second mortgages with scores as low as 580 being available until only recently. 

If you have ever wondered what the $10s of billions of on-balance sheet ‘MBS for sale’ and whole loan firsts and seconds consists of, much most likely is their portfolio subprime products.  I am sure you already know about Wells Fargo’s $84 billion in second mortgages worth pennies on the dollar.  Like US Bank, their at-risk mortgage exposure dwarfs their shareholder equity.  Chase has similar on-balance sheet at-risk mortgage exposure but one big difference is thier overall size of course.

According to my extensive personal research on mortgage defaults and foreclosures by bank, Chase is currently ranked #5 of all lenders for Notices-of-Default and homes not sold and taken back at foreclosure auctions year-to-date in the State of CA.  To put that in context, lender’s #1 through #4 and #6 through #10 is a ‘who’s who’ of headline leading troubled banks.

On Friday, Chase announced to its approved mortgage brokers nationally that it will stop offering portfolio Jumbo loan programs through its wholesale channel and only offer Agency (Fannie/Freddie) product.  Granted, demand for all jumbo product, including Agency, in abysmal even in CA where it is needed the most but Chase backing out surprised many. 

Up until now, Chase was one of the last remaining banks offering products considered to be ‘risky’ and/or ‘exotic’ on the broker level.  For example, they were one of the last doing Subprime and Home Equity Loans/Lines of Credit (HELOC), both of which were eliminated in May 2008.  In June 2008 they eliminated limited documentation products through its correspondent channel and January 2008 they eliminated their Alt-A programs.

“Impacted products include the Super Jumbo feature; non-Agency Premier Program, non-Agency Signature Series Streamline Purchase, no cash-out and cash-out refi’s currently available on market types 623, 603, 510, 516, 517, and 513, and non-Agency Lender Paid Mortgage Insurance currently available on market type 603.”

“Any remaining non-Agency loans must be registered by 8/3 and delivered to underwriting by 8/31. The last day to close and fund non-Agency loans is 9/15. No lock extension, renegotiations or extensions of credit documentation expiration dates will be granted.”

Needless to say, Chase originated some of the worst performing loan types far longer than most banks, which may just come back to cause problems in the end.  To be honest, as a direct competitor to Chase for many years including the bubble years, I am surprised that they haven’t admitted to major problems yet.  This is because they absolutely did the exact same loan types during the bubble years so many other banks have lost so much on; just more of them than most.

I have always said that banks just don’t stop doing loan programs if they are profitable and not experiencing problems.  Chase agrees.

“Chase attributed the decision to a dramatic decline in jumbo volume during the past six months, a lack of demand in the capital markets for jumbo products and worse-than-expected delinquency on bigger loans.”

Best,

Mr Mortgage

 

21 Responses to “Chase Quietly Scaling Back Mortgage Lending”

  1. You refer to the list of lenders that have taken back homes, but have yet to put them on the market. Can you print that list?

  2. I have heard that Wells Fargo is in the process of dumping thousands of homes on the greater Sacramento market. Can you confirm any part of this?

  3. I have not hear that but if anyone can confirm and get me contact contact info for the person in charge it would be appreciated.

    One thing is for sure, Wells owns alot of REO. They are #2 in the state for foreclosures only to Countrywide.

  4. MR M! When is your next you tube video?

  5. MR. M, do you have the list of lenders you referred to above?

  6. Hi Realist. The data are part of our paid research service but I may be able to answer a couple of questions for you.

  7. What about Washington Mutual? You can tell everything about a company by the price and trading of the company stock. WM stock looks very similar to IndyMac about two weeks ago. JPM Chase stock is very solid and have lots of room to move down before they get into any trouble. I don’t disagree with you about Chase issue. I just think they will survive the storm unlike Indymac or possible WM.

  8. Housing Realist, I’m a Sacramento local and it would be greatly appreciated if you could tell us where you heard about the Wells Fargo REO’s. Thanks

  9. Meredith Whitney is on CNBC this morning – Super interesting! and backs up a lot of what MR. M has been warning about, and more – imo

  10. For what it’s worth….SunTrust curtailed HELOCs in the wholesale channel in July. They still offer the product in the retail channel.

  11. Looks like the NYTimes is finally waking up to Alt-A.

    Housing Lenders Fear Bigger Wave of Loan Defaults
    By VIKAS BAJAJ
    Published: August 4, 2008

    The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

    Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

    The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

    …..

    While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

    Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

    “Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”
    …..

  12. ET – that NYT story was a direct knock off to my stuff including quoting DataQuick foreclosure data in CA alone. What a trip.

  13. Chase wholesale in my area in FL were heavily involved in condo financing. Much more agressive in seeking those loans by doing lots of full project approvals compared to other lenders. That just seems like suicide to me as the current market value on these properties are half of what they were sold by the developers. Everyone is scrambling to find financing on these projects now and people aren’t able to close. Hearing stories of mass amounts of delinquencies of HOA dues and short funded budgets because of it. These shortages I assume will get assessed to all the people that actually closed on units and will further push people to walk away.

    A Flyer I got from Chase in April was titled “You’re not boxed in with the Chase Condo program. “

  14. “Paid research service” ?

    Where do we find out more about that?

  15. Hi Paul,

    We pprovide research on all of the banks and their real time defaults and loans taken back at foreclosure auctio. It gives a real good idea of future losses. Shoot me an email at mrmortgagetruth@gmail.com

  16. While most of you insight has been good, you are wrong about SunTrust. You really need to understand who “owned” the HELOC product that was being sold. When the bank told the mortgage company it wanted no more CA HELOC orignations, in your mind thny were shutting all down. What you need to understand is that CA and all out of footprint production was a very small piece of the overall Equity Loan Production for SunTrust, but a hugh part of the losses.

    The majority of the majority coming from the in footprint states. The bank elected now to exit the wholesale equity business completely, prompting the mortgage company to divest themselves of the remaining AE’s, sad thing. SunTrust is still very much alive and kicking in the retail channel of the bank.

    Most of your stuff is right on and I appreciate your insight. Since this website is now viewed so much nationally, I would love to see more information than just California. Something positive in this business would also be nice.

  17. Hi SunTrust – I agree with you about the ‘footprint’ arguement, but I also know that SunTrust did massive HELOC volume in the bubble states through their wholesale channel.

    They were a major piggy lender even until recently because they were the only ones offering portfolio HELOCs to 95% until late last year. Then they cut it back to 90 then 85% then gone.

    Each and every time a major lender would exit the business SunTrusts volume would increase. I have two good friends who are AE’s there. I tracked the volume of such.

    You maybe right about the footprint and retail branch customers etc but I think you are not fully aware of how much wholesale business they did in the bubble states.

    According to Fitch HELOCs make up 123% of SunTrusts total equity and 17% of thier total loans.

    Fitch thinks that 23% are 3rd party and 77% are branch but the raters have always reported this wrong. They consider 3rd party builk purchases or correspondent lending. Wholesale channel is ‘branch’.

    Anyway, even with footprint originated HELOCs, negative equity is negative equity. BofA recently said on their earnings conf call that they see ‘no material quality differnces between wholesale and retail originated HELOC’s.’

    I don’t think SunTrust is going down but do believe they have more pain to come in their construction, heloc, pay option and overall alt-a resi portfolios.

  18. According to Fitch HELOCs make up 123% of SunTrusts total equity and 17% of thier total loans” I dont think I understand your statement.

    Also to know, the were AE’s in footprint (and about 4 out of footprint) that focused only on Equity loan production. They were under the bank, not mortgage umbrella, until recently. The production you saw in the “bubble states” was that of what was produced by SunTrust 1st mortgage Wholesale AE’s , not the bank AE’s it also underwritten by 1st mortgage, and then sold to the bank. Those were the worst of the worst loans and what made SunTrust pull the Out of Footprint states in May. The rest of the dedicated Equity AE’s as well as first mortgage AE’s who sold HELOCS was still viable until the complete shut down 10 days ago. Trust me on the equity stuff, I was there from the beginning and know it well. Starting it in Orlando in 1996. Having been there from the start, I was very sad to see the Equity Group Closed Down. I have a bunch of friends who are losing there jobs.

  19. SunTrust – I believe you were there and believe you know the whole story but I don’t quite understand where you are going with the statements above.

    Yes, I was talking about SunTrust 1st mortgage divisions selling the heck out of risky 2nd mortgage product for years.

    I dont think just because dedicated 2nd mortgage reps sold more of them, it makes them safe. I would be interested in seeing the total number of 2nds sold by state/original LTV/year/quarter.

    I am willing to bet the majority of the 2nds on the books are underwater just like with the other large 2nd holders.

  20. I refinanced my home in Florida 2 1/2 years ago and added a $45,000 HELOC from Suntrust. Shortly afterward, the house sold and the loan was paid off. I continued to receive statements from Suntrust for about 6 months and finally called them to ask why. I was told that while the loan was paid off it was never “closed”. I told them the house (security) was sold and this must be incorrect, but they didn’t care! They said I could continue to use the credit line until I closed the account. I don’t know if this is an exception or the rule, but I can tell you I owe them $45,000 securitized by a house I haven’t owned for nearly 2 years! I’m still paying my bill, but since I am a mortgage broker and times are more than tough, it probably the first thing to go if I can’t pay my mortgage payments — how will they foreclose?

  21. Hi Michelle,

    I read your post and was relieved to find someone in the same boat. Did you get any response? Or, did you consult with any third party professionals on the subject? I have an unsecured HELOC, fought with two different servicers–received written documentation that the loan was paid and closed. They several months later, I am in a new home and go to get a HELOC. The lender pulls my credit and alerts me to the fact that another vendor is listing my HELOC as open/active with zero balance but has 400k credit available. I explained the situation, and they didn’t care. So, I used it, naturally. I have been paying on time for a couple years–no I have suffered a major hardship in my business and it’s looking really bleak. I need to research my options in the event I cannot pay. Any advice much apprecitated (justin at wootgigz.com)

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