The JPMorgan CEO says the current market is driving banks away from the industry
The country “desperately needs mortgage reform,” according to the CEO of the country’s largest bank.
In his annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon said that the mortgage market’s current set-up meant that the industry had missed out on at least $1 trillion in mortgages over the past several years.
“Reducing onerous and unnecessary regulations and servicing requirements (there are 3,00 federal and state requirements today) and opening up the securitization markets for safe loans would dramatically improve the cost and availability of mortgages to consumers – particularly the young, the self-employed and those with prior defaults,” Dimon said. “And these would not be subprime mortgages but mortgages that we should be making, by taking this step, our economists believe that homeownership and economic growth would increase by up to 0.2% a year.”
Dimon said that “bad mortgage rules” were hindering the growth of the economy – and that “political intervention” made it hard to achieve mortgage reform.
“This has become a critical issue and one reason why banks have been moving away from significant parts of the mortgage business,” he said. “That business, in particular, highlights one of the flaws of our complicated capital allocation regime. The best way to risk manage a bank is to use risk weights that are actually based on risk. However, since most banks are also constrained by standardized capital (a capital measurement that does not risk-adjust for the lower risk of having a properly underwrittem prime mortgage), owning mortgages becomes hugely unprofitable.”
Dimon said that the challenges faced by the mortgage industry are causing JPMorgan to rethink its own mortgage business.
“Because of these significant issues, we are intensely reviewing our role in originating, servicing and holding mortgages,” he said. “The odds are increasing that we will need to materially change our mortgage strategy going forward.”
