Residential Repurchase Losses Rise at JPM


JPMorgan Chase suffered a residential repurchase loss of $390 million in the fourth quarter, a 17% increase from the year earlier period, and a sign that Fannie Mae, Freddie Mac and other secondary market investors are not easing up on their buyback demands.

In its fourth quarter earnings statement JPM, the nation’s second largest home lender, noted that its production expenses are rising for two main reasons: it is relying more on retail production – which is more costly than third-party production – and it’s spending more money on what it calls “enhanced underwriting processes.”

The megabank now employs roughly 49,000 workers in its mortgage banking unit, a 10,000 position gain from a year ago.

Meanwhile, JPM suffered a pre-tax loss on its residential servicing business, blaming it on MSR “risk management.” But its servicing revenues fell 9% to $1.1 billion, an event caused by a reduction in its third-party servicing contracts.

Overall, JPM’s residential mortgage business posted an operating loss of $258 million in the fourth quarter, compared to a $463 million loss in 3Q. In 4Q 2010 its mortgage business lost $588 million.

However, residential fundings at Chase (the trade name of its mortgage division) rose 5% from 3Q to $38.6 billion. But compared to 4Q 2010 production fell 24%.

The company continued to show improvement on its residential net charge off rates. Its prime portfolio had a net charge-off rate of just 1% in 4Q compared to 3.48% a year earlier. Its subprime portfolio had a 5.41% charge-off rate compared to 13.75% in 4Q 2010.

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