Thursday, July 17, 2008

JPMorgan's Prime Mortgages Causing Losses; Could Triple

It’s not just subprime anymore.

The NYTimes reports that James Dimon, the boss at JPMorgan, said that losses stemming from “prime” mortgage loans could triple in the coming months.

"So far, the pain in the mortgage crisis has been concentrated in so-called subprime loans, which were given to those with poor credit histories.

JPMorgan has weathered the subprime downturn better than many of its peers. But on Thursday, it said it charged off 5 percent of its subprime mortgages in the latest quarter, resulting in a hit to earnings of nearly $200 million.

And the mortgage contagion may be spreading from subprime to prime mortgages, which were given to people with the best credit histories.

'Prime looks terrible, and we’re sorry,' Mr. Dimon said on Thursday’s conference call with investors. “We can say it eight times. It looks terrible.”

Around three-quarters of the firm’s prime mortgages are “Alt-A” and “jumbo” mortgages.

Alt-A mortgages were written to people with relatively strong credit histories, but whose income was not verified. Jumbo mortgages were written for those borrowing more that $417,000."

As we all know, prime mortgages are supposed to have a very low chance of defaulting.

Meanwhile, Merrill Lynch is having a "Bloodbath," according to the NYTimes.

"The troubled securities reported a net loss of about $4.9 billion, or $4.95 a share, a drastic change from the $2.3 billion it earned just one year ago. Merrill said that it had a net loss of $4.6 billion from continuing operations. Analysts had expected on average a loss of $1.8 billion."

"It reported negative revenues of $2.1 billion, compared to $9.5 billion at the same time last year, as the firm was weighed down by nearly $10 billion in charges, write-downs and credit revaluations."


Montpellier said...

"May be spreading to Prime" - according to Jamie Dimon's conference call on JPM yesterday, Prime is in terrible shape. He was very up-front about it. We're all "subprime" now...

We're (the country) going to be rewinding the tape/setting back the clock on the lending process - about 15 years - to the good old days when you submitted your entire life history, along with the medical records of your children, your transcripts and a note from the teacher, for the local loan officers to pour over at a meeting down at the brick-and-mortar branch of your local bank while they debated whether or not to give you a loan!

I remember good old Hovey Dabney down at Jefferson National - got my first loan from him, and later he was a neighbor. We're going back to that kind of lending - no more McMortgage loans down at your friendly RE Agent's office.

Buyers and Sellers may be willing to keep the crazy musical-chairs going - there may be lots of pent-up-demand to meet that inventory overhang - but anyone who kids themselves that there will be lenders willing to finance the game is doing just that: kidding themselves.

matt. s. said...

That is where we are now montpelier, but if it is nationalized perhaps much housing will end up on rent-to-own plans. They have to move this inventory somehow.