As the uproar over questionable conduct by mortgage lenders intensified Wednesday, one of the nation’s largest banks distanced itself from a controversial, industry-owned registration system that oversees millions of home loans.
On the same day that all 50 state attorneys general announced that they would investigate foreclosure practices, JPMorgan Chase became the first big lender to acknowledge that it had stopped using Mortgage Electronic Registration Systems, or MERS, for foreclosures.
This bank-owned registry, which eliminates the need to record changes in property ownership in local land records, has been criticized for sloppy practices.
Jamie Dimon, chairman and chief executive of JPMorgan Chase, said that his bank had stopped using MERS “a while back”as part of a broader overhaul of its loan servicing practices.
Its Chase mortgage unit and EMC, a mortgage unit it acquired with its rescue of Bear Stearns, stopped using the system for foreclosures in 2007.
Washington Mutual stopped using MERS for foreclosures in 2008. None of the mortgage units use MERS for underwriting loans, but the system is used for other loan collection activities.
At the same time, Mr. Dimon said that the bank had expanded the scope of its review to more than 115,000 loan foreclosure files in 41 states, a move that will effectively delay its foreclosure sales in most of the country.
Mr. Dimon’s remarks, his first since the crisis began to spiral, came as JPMorgan reported a $4.4 billion profit for the third quarterdespite a 15 percent drop in revenue. Investors shrugged off the results, and JPMorgan’s share price closed down 1.4 percent, to $39.84, despite a gain in the broader market.
Even as Mr. Dimon pointed to signs that credit card and other loan losses were stabilizing, he also sought to reassure investors that he had his arms around the bank’s mortgage problems. JPMorgan announced it was taking a $1 billion charge to set aside additional funds to cover faulty home loans that it was obligated to repurchase from Fannie Mae, Freddie Mac and private insurers, and said the actual costs could remain about that high in 2011. It also set aside $1.3 billion to cover future mortgage-related litigation.
Mr. Dimon also tried to reassure the public that in spite of sloppy documentation practices, the bank had not mistakenly foreclosed on homeowners, because the underlying information was accurate. The bank has assembled hundreds of lawyers and senior executives to review the files, and he said that any problems would be corrected and resubmitted within several weeks.
So far, JPMorgan officials said, their review has found that some executives who signed off on foreclosure documents had not personally reviewed them, but instead, relied on the work of Chase employees. The bank also acknowledged that there were some loan documents that were not properly notarized.
Douglas L. Braunstein, JPMorgan’s newly appointed chief financial officer, said that the bank was “comfortable with the process” of addressing the documentation concerns, but that the bank had acted appropriately on foreclosure decisions.
Mr. Dimon tried to play down the possible impact, but acknowledged that the problems could spiral. “If you’re talking about three or four weeks, it will be a blip in the housing market,” he said. “If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody.”
Indeed, he acknowledged that fixing the problems would be expensive and the legal costs, stemming from both the state attorneys general investigation and private lawsuits, could mount.
“It will cost us some money to make sure we go back and it is done right,” he said in a conference call with journalists. “The whole mortgage issue costs us so much money now, to me, it is incremental” to the costs we are already bearing.
After powering ahead for the last year on the strength of its trading operations, JPMorgan topped investor expectations with the help of improvement in its credit card businessand a gain from money it had previously set aside to cover possible losses from bad loans.
Net income rose to $4.42 billion, from $3.58 billion a year earlier. Earnings were a $1.01 a share, handily topping analyst forecasts for 88 cents. Earnings were 82 cents a share in the period a year ago.
Revenue fell 15 percent, to $24.3 billion, from $28.8 billion, in the period a year ago. Over all, JPMorgan set aside about $3.2 billion, a 67 percent drop from the $9.8 billion it allocated for losses a year ago. That sharp reduction was driven by modest improvements in housing and the job market, as well as signs that credit card borrowers were in better shape. Indeed, JPMorgan benefited by a $1.5 billion, or an after-tax gain of about 22 cents a share, from lowering the money it set aside for credit cards, as record charge-off levels start to slow.