Thursday, April 05, 2012

JP Morgan Chase CEO on housing: "We were one of the better actors in this situation – but not good enough; we made mistakes"

JP Morgan Chase CEO Jamie Dimon's letter to the shareholders. Here is an excerpt of Dimon's letter to the shareholders on the housing crisis. Instead, Dimon places the blame of the problems in Chase's mortgage problems on its inheritance of the purchase of Washington Mutual and EMC Mortgage formerly owned by Bear Stearns. Page 26:

We were one of the better actors in this

situation – but not good enough; we made

too many mistakes. We generally were a

better underwriter. We did not originate

option-ARMs. Many of our problems were

inherited from Bear Stearns and WaMu.

Even our subprime mortgages outperformed

most other subprime mortgages. Early in the

crisis, we also stopped dealing with mortgage

brokers, some of whom underwrote the

worst of the mortgages and probably missold

mortgages more than most.

But we did participate in this disaster by

originating mortgages that wouldn’t have

been given a decade earlier (and won’t be

given a decade later). And when delinquencies

and foreclosures grew dramatically, we

were ill-prepared operationally to deal with

the extraordinary volume of troubled mortgages

and upset borrowers. Our servicing

operations left a lot to be desired: 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 this problem meant

overcoming the multiple and poor systems

we inherited from our acquisitions of Bear

Stearns and WaMu. In addition, there

were numerous government modification

and refinancing programs and multiple

changes to these programs to contend with,

some of which involved extensive and

hard-to-complete paperwork. We now have

23,000 people servicing delinquent loans

or dealing with foreclosures – up from

6,800 people in 2008.

These problems, as one might expect, led to a

myriad of lawsuits from various U.S. government

agencies, attorneys general from the 50

states and private investors.

We have settled with the U.S. government

and state attorneys general and implemented

strong new policies – for the good

of all. In February 2012, JPMorgan Chase

and four other top mortgage servicers

agreed to a global settlement with the U.S.

Department of Justice, the U.S. Department

of Housing and Urban Development, the

Consumer Financial Protection Bureau and

the state attorneys general. The settlement

relates to the servicing and origination problems

mentioned above.

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