Bloomberg News

JPMorgan Lists $2.5 Billion of Costs Tied to Faulty Home Lending

July 14, 2011

July 14 (Bloomberg) -- JPMorgan Chase & Co. listed about $2.5 billion in second-quarter costs tied to cleaning up faulty mortgages and foreclosures as the industry tries to quell concern over lending practices.

The bank added $1.27 billion to litigation reserves, mostly for mortgage-related matters, and incurred $1 billion of expenses tied to foreclosures, according to a slide show accompanying today’s quarterly earnings report. Repurchase losses were $223 million, according to the New York-based company, which ranks second by assets among U.S. banks.

Lenders are struggling to stanch losses tied to home loans that were based on missing or wrong data about borrowers and properties, and are facing probes of foreclosures that may have used falsified documents. Some banks have bought back soured mortgages sold to investors, with JPMorgan saying today it has $3.3 billion in costs so far on repurchases from government- backed firms such as Fannie Mae.

JPMorgan’s additional litigation reserve may help cover “fees and assessments related to foreclosure delays and payments for other settlements,” including probes by the U.S. Department of Justice and the state attorneys general, the bank said. Litigation reserves also cover projected costs tied to so- called private-label mortgage bonds that may have contained faulty loans, the lender said.

Washington Mutual

The reserves aren’t earmarked for liabilities from loans made by Washington Mutual, the lender acquired after it collapsed during the financial crisis. JPMorgan said those liabilities are the responsibility of the Federal Deposit Insurance Corp., adding that the “FDIC has contested this position.”

The outstanding balance of those loans related to Washington Mutual was approximately $70 billion as of March 31, with about $24 billion overdue by 60 days or more, according to the company’s first-quarter regulatory filing.

JPMorgan’s second-quarter net income climbed 13 percent to $5.43 billion as investment banking profit surged and more customers paid credit cards on time, the company said today. The lender advanced $1.44, or 3.6 percent, to $41.06 at 9:31 a.m. in New York Stock Exchange composite trading. The bank declined 6.6 percent this year through yesterday.

--With assistance from Dawn Kopecki in New York. Editors: Dan Kraut, William Ahearn

To contact the reporter on this story: Rick Green in New York at rgreen18@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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