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.”