JP Morgan Chase & Co., the second largest mortgage lender in the U.S., may stop issuing Federal Housing Administration (FHA) loans, Jamie Dimon - CEO of the company - suggested at a latest earnings call.
In a conference call with analysts, Dimon insinuated that JP Morgan Chase could cut down significantly on FHA lending because it does not want to take the risk of a huge loss once again. The bank recently paid a $600 million fine to the FHA for selling faulty mortgage loans that eventually led to the financial crisis in 2008.
"We collected $600 million on [FHA] insurance. They disputed $200 million. The government called that fraud. We reimbursed $600 million to get out of the lawsuit. So the real question to me is, should we be in the FHA business at all?" Dimon answered to an analyst's question on the con-call, reports Fortune.
"Until they [FHA] come up with a safe harbor or something, we are going to be very, very cautious in that line of business," Dimon said at the conference explaining, "So we don't get hit with triple damages every time something goes wrong."
Several big banking giants are cutting down on FHA mortgage lending because of the strict penalties they face if the loans go bad. According to Businessweek, the bigger names are surrendering FHA mortgage lending to non-banking institutions.
The number of FHA loans manufactured by JP Morgan in the second quarter fell 66 percent, the lowest since 2005. Wells Fargo's originations also dropped 58 percent in the second quarter of 2014.
Experts say that the move to cut down on FHA lending bodes from the frustration banks have been facing over its strict rules and penalties.
"My guess is that it's probably gotten people's attention that he signaled that maybe he's had enough. I suspect that every one of his competitors feels the same," Brian Montgomery, vice chairman of the Collingwood Group, who also served as FHA commissioner under President George Bush, told Bloomberg.
About FHA Loans:
The FHA loans are insured by the agency where a certain amount of cover is provided to the banks that lend mortgages. During the financial downfall, several banks were accused of selling shoddy mortgages (where home buyers aren't able to repay the loans) which later bogged down the agency into deep debts.
