JPMorgan Chase is the second-largest mortgage lender in the U.S., but it is not in the top 100 when it comes to low down-payment Federal Housing Administration loans.
"FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down; that's subprime lending, and we're not in the subprime lending business," said CEO Kevin Watters of Chase Mortgage Banking. FHA loans were not stopped entirely by Chase Mortgage and the requirements for FICO are far higher, and its loans are more expensive in the added risk.
CNBC news said that according to Ted Tozer, president of Ginnie Mae, independent lenders have picked up the FHA slack from big banks, but come with added risk for which Ginnie Mae is well-equipped.
Today independent mortgage banks issue guaranteed securities to almost two-thirds of Ginnie Mae. Independent mortgage bankers use some of the most sophisticated financial engineering that the bank industry has ever seen. Greater dependence on credit lines is also seen, and securitization involving multiple players - all these things have created a new and challenging environment for Ginnie Mae.
JPMorgan Chase is not the only bank to back out from FHA. Wells Fargo, the largest mortgage lender in the nation, also raised minimum FICO scores for FHA borrowers. Big banks that move away from the low down-payment options are hurting the housing recovery. Lawrence Yun, chief economist of the National Association of Realtors, said: "I believe that it will have a measurable impact in holding back some of the first time buyers.''
Yahoo reported that from the government policy point of view, they need to look at it broadly, and go after the mistake the lender has done or broken the law. But any uncertain lawsuit is going to hold back the market recovery.
In August, home sales have dropped off, far more down than was expected and it's still less than one third for first-time homebuyers. Normally, they would account about 40 percent of homebuyers.
