In a letter to shareholders JPMorgan (JPM) Chief Executive Jamie Dimon admits that his bank contributed to the collapse of the American housing industry, but says that progress is being made to rectify the errors.
“We were one of the better actors in this situation — but not good enough," Dimon says. "We made too many mistakes."
Dimon tells shareholders that his bank participated in the disaster by originating mortgages that wouldn’t have been given a decade earlier (“and won’t be given a decade later”). When delinquencies and foreclosures grew dramatically, his bank was “ill-prepared operationally to deal with the extraordinary volume of troubled mortgages and upset borrowers.”
“Our servicing operations left a lot to be desired,” he adds. “There were too many paperwork errors, including affidavits that were improperly signed because the signers did not have personal knowledge about what was in the affidavits but, instead, relied on the company’s processes. However, the information in the affidavits was largely accurate – i.e., the borrower, in fact, was in default, we did have the mortgage and so on.”
Gearing up to deal with its problems meant overcoming the poor systems JPMorgan inherited in acquiring Bear Stearns and Washington Mutual. In addition, there were numerous government modification and refinancing programs and multiple changes to these programs to contend with, Dimon says, some of which involved extensive and hard-to-complete paperwork.
Dimon also points out that early on in the crisis, JPMorgan stopped dealing with mortgage brokers, some of whom, he claims, “underwrote the worst of the mortgages and probably mis-sold mortgages more than most.”
For a thorough account of the “Fall and Stalled Rise of the Mortgage Broker” within the context of the financial crisis, check out the latest issue of HousingWire magazine.
JPMorgan has 23,000 people servicing delinquent loans or dealing with foreclosures — up from 6,800 people in 2008.
The bank's problems led to a myriad of lawsuits from various U.S. government agencies, attorneys general and private investors.
As part of the $25 billion settlement, JPMorgan must make a $1.1 billion in cash payments to the 50 states, a portion of which will be set aside for payments to borrowers. The bank is offering $500 million of refinancing relief to certain underwater borrowers whose loans are owned by the firm. It is also providing $3.7 billion of additional relief for certain borrowers, including principal reductions on first and second liens, payments to assist with short sales, deficiency balance waivers on past foreclosures and short sales, and forbearance assistance for unemployed homeowners.
To repair its mortgage business, JPMorgan implemented a Homeownership Center in 2009 to help distressed customers remain in their homes. In October, it consolidated its mortgage servicing platform, which was three legacy technology systems from Chase, Bear Stearns and WaMu.
“We have brought enormous resources to bear on fixing our mortgage business. Many of our top executives volunteered to help – and we now have some of our best people from finance, risk, technology and operations devoted to this effort. As a result, we are responding rapidly and are improving across the board,” Dimon said in the letter.