J.P. Morgan Chase & Co. widened its review of foreclosures to 41 states and 115,000 loan files, the latest U.S. bank to take a more comprehensive look at its documentation to ensure all information is accurate.
The New York institution was among the first banks to temporarily suspend evictions in the 23 states where court approval is required to foreclose on a home. Several other U.S. banks—including Bank of America Corp., Wells Fargo & Co. and Ally Financial Inc.’s GMAC Mortgage—are scrambling to review documents amid concerns about their use of “robo signers” who approve hundreds of foreclosure documents a day.
The nation’s second-largest bank by assets stopped short of announcing a nationwide moratorium on foreclosures; it originates mortgages in all 50 states.
Meanwhile, J.P. Morgan said it set aside $1.3 billion of additional pre-tax litigation reserves in the quarter, “including those for mortgage-related matters.” J.P. Morgan Chief Executive James Dimon said the reserve wasn’t related to the foreclosure-documentation issue.
Mr. Dimon played down the potential cost of any foreclosure-documentation problems, saying it should be “incremental” to the bank. The reserves it set aside to cover any repurchases of faulty mortgages, from companies such as Fannie Mae and Freddie Mac, increased $1 billion pretax.
“We think JPM is building a war chest against mortgage-related litigation,” said Betsy Graseck, banking analyst with Morgan Stanley, in a note.
Mr. Dimon also addressed J.P. Morgan’s involvement with Mortgage Electronic Rating System, or MERS. The system streamlines legal record-keeping for mortgage sales and securitization; it can stand in for the owner and servicer of a mortgage in county record-keeping and foreclosures. MERS is coming under increasing public scrutiny in foreclosure proceedings because it is neither the owner nor the servicer of a mortgage.
Asked during a conference call with investors how “comfortable” he is with “the robustness of the MERS system” given recent criticism, the CEO said: “We stopped a while back using them” in foreclosures.
By 2008, J.P. Morgan had stopped using MERS to foreclose in the bank’s name because, it said, some local judges didn’t accept MERS. Also, J.P. Morgan years ago stopped using MERS to register mortgages it originates itself, for example in its branches. It does use MERS for mortgages originated by other banks or brokers and that J.P. Morgan services.
A spokeswoman for MERS said, “J.P. Morgan Chase is a valued member of MERS. As members of MERS and for loans registered on the MERS System, banks have the option of foreclosing in their own name, or MERS foreclosing for them. JPMC has chosen to foreclose in their own name, which is a common decision that is allowed under the structure of MERS.”
The new foreclosure steps overshadowed the bank’s announcement of $4.4 billion in third-quarter earnings. The results were up 23% from a year earlier, surpassing analysts’ estimates, but largely because it set aside less money for bad loans. Income in the investment bank was down 33% on weaker trading.
Mr. Dimon offered assurances that concerns about how banks process foreclosures wouldn’t have an outsize impact on the larger economy. “I don’t think the shooting star risk will blow up,” he said.
The review, he said, will take several weeks and may “increase costs a bit.” He also said the bank may have to “pay penalties” resulting from a multistate investigation into the banks’ use of “robo signers” to approve documents.
J.P. Morgan said it found cases of mortgage signers not reviewing the underlying loan files and instead relying on the work of others. It also discovered affidavits filed as part of the foreclosure that weren’t properly notarized.
“We are going file by file, case by case,” said Chief Financial Officer Doug Braunstein. “If we made mistakes we fill fix them.”
So far, Mr. Dimon said, there are no cases of anyone “evicted out of home who shouldn’t have been.”
GMAC Mortgage said Tuesday it decided to initiate a review of foreclosures in all 50 states, up from 23. Wells Fargo also acknowledged that it had started a review of pending foreclosures in states where an affidavit is required. Bank of America last Friday said it would halt all foreclosures and foreclosure sales in 50 states, up from 23.
By wsj.com
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