Mortgages Are Still A Growing Source Of Pain For JP Morgan Chase
Courtesy of John Carney at ClusterStock
JPMorgan’s giant book of home equity loans and mortgages is considered an important bellwether for other lenders. So how did it do?
Things got worse. Twice as bad for many loans, and even worse in subprime. The charge-offs against home equity loans were more than twice as high as a year ago, rising from $511 million to $1.3 billion. Charge-offs against prime loans were more than four times higher, jumping from $104 million to $481 million. And charge offs against subprime were twice as high, going from $192 million to $410 million.
But those numbers are a bit misleading, thanks in part to JP Morgan’s acquistion of Washington Mutual. JP Morgan acquired many home loans when it acquired the bank, pumping up the total size of its portfolio and thus the size of its charge offs. To really understand how the various categoies of loans are performing, it’s better to look at what JP Morgan calls its "net charge-off rate," which is a measure of the portion of its portfolio that it thinks is going bad.
When it comes to home equity loans, the net charge-off rate grew from 2.16% last year to 4.61%. For subprime mortgages, JP Morgan increased the rate from 4.98% all the way up to 11.5%. In prime mortgages, the rate rose from 1.08% to 3.07%.
These results won’t come as a surprise to anyone who has watched the continued deterioration of home prices and economic conditions. They reflect JP Morgan’s expectations of losses from its home loan portfolio. You can expect some debate about whether JP Morgan is being too conservative or too loose with these estimates.
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