Origination News Feature Story

Dimon Critical on Wholesale

By Brad Finkelstein

WASHINGTON-The head of JPMorgan Chase criticized the mortgage broker business in a speech at the U.S. Chamber of Commerce Annual Capital Markets Summit here, saying it had relatively higher loss rates than other channels and he should have shut down the company's wholesale business sooner.

Jamie Dimon, chairman and chief executive, started the presentation by saying it is time to assign blame although adding assigning blame is not a solution.

The housing bubble is a result of badly underwritten loan products, especially option adjustable-rate mortgage loans.

Furthermore, there was a reason why originators in the past looked for 80% loan-to-value ratio, pointing out the high level of defaults on low downpayment loans.

Securitization had its flaws, Mr. Dimon said, with no one responsible for underwriting from the start of the process to the end.

But what he termed as the biggest mistake of his career was not shutting down the wholesale operation at Chase sooner. The broker-originated loans have two to three times the higher loss rates, and he said this was because a Chase salesperson was not meeting with the client.

He also commented on the takeover of the government-sponsored enterprises, saying he was "shocked" at the implicit guaranty.

Mr. Dimon called on regulation for the entire mortgage process, including mortgage-backed securities. He said last month he would support the Obama administration's mortgage modification plan.

The president of the National Association of Mortgage Brokers, Marc Savitt, responded to Mr. Dimon's comments about brokers by saying, "It is disappointing to once again refute senseless attacks on the mortgage brokerage industry based on misinformation.

"Mr. Dimon's comments clearly reflect his poor understanding of the industry and the role of the mortgage broker.

"NAMB urges Mr. Dimon to recognize that mortgage brokers do not create loan products, do not determine the automated underwriting systems used to qualify borrowers, do not underwrite the loans, and do not approve borrowers for those loans - Wall Street investment banks 'who are now out of business' did that."

He understood the need to blame someone outside the financial institutions for the failures of leadership and accountability, "but Mr. Dimon should admit to the world that they created mortgage products and sold them through all origination channels - banks, lenders, credit unions, homebuilders, mortgage brokers - based on Wall Street's determination they could be securitized and sold to investors across the globe."