Friday, January 15, 2010

JPMorgan on Modifications

by Bill McBride on 1/15/2010 10:39:00 AM

Here is an exchange between Meredith Whitney and Jamie Dimon on the JPMorgan conference call this morning (ht Brian):

Whitney: [W]e're reaching a critical point in terms of all of the loan modification efforts and this is an industry question but then how it specifically affects your Company, given the fact that the industry feedback and statistics on the loan modification efforts are not good, so you question what's the next initiative and the issue of principal forbearance. How much momentum do you think that has, can you comment on what stage we are in terms of obviously the extension ends [soon] with the last slug is over in February, so where do you think we are in terms of the government’s efforts to influence banks to do certain things?

Dimon: Well remember we do modifications of our own and we do the government modifications and I do think they're kind of new, it was complex, and I think people will get better at it over time, Meredith. We have not thought of a better way to do it than loan by loan, which is does the person want to live there, can they afford to live there, and we really think that the payment, how much you're paying is more important than principal. Even if you are going to do something on principal, to do it right you have to do it loan by loan and it effectively comes a similar kind of thing. The difficulty is the loan by loan part and we've asked the government and I think they tried to streamline a little bit to have programs because there's too much paperwork involved in it so a lot of the reasons we're not getting to final modifications half the time we don't finish the paperwork, so they need the lower payments but they weren't finishing the paperwork so we're trying to get better at it, honestly, we rack our brains to figure out if there's a better way to do it and you can do it more macro than loan by loan but once you start talking about macro, you're going to get involved in a lot of issues about whether the people live there, whether they have the ability to pay, whether they were honest when they first told people how much their incomes were, so we're working through it.

Whitney: Okay, do you get a sense that there's something right behind HAMP, that there’s another solution for the government or is it more your efforts?

Dimon: We're trying to do this, look, we're trying to have ideas and they are trying to have ideas but if we had a brilliant one we would be very supportive of doing it. We want to do the right thing for the people.

Whitney: Okay, so a point of clarification on your answer, issue of principal forbearance is not something that people should be overly concerned about with respect to reserves and capital for the bank?

Dimon: No, I think if there's a macro government force on something like that you could have a fairly significant effect on loan loss reserves and losses, etc.

Whitney: But is that a real, any momentum?

Dimon: Honestly Meredith you probably know as well as we do.

Whitney: I don't know. I can't help myself on that one.
A few comments:
  • Most completed modifications are bank programs, and not HAMP. It is worth remembering that HAMP is just a subset of all the programs (the HAMP numbers will be released today).

  • Thinking that the "payment" is more important than the "principal" (or price when buying) is part of the reason we have this problem.

  • "Paperwork" is mostly qualifying borrowers in arrears.

  • Dimon apparently isn't aware of any momentum for a macro principal reduction program, but if one came along it would have a "significant effect on loan loss reserves and losses".

    And more on JPMorgan's results from the WSJ: J.P. Morgan Chase Profit Surges to $3.3 Billion
    Chief Financial Officer Michael Cavanagh was largely silent when asked by reporters when the bank might be done setting aside money for further losses, and when business and consumers would start borrowing again.

    "There are signs that things are stabilizing, but ... the dramatic nature of the financial crisis we went through and the extraordinary responses" make the current environment different from previous economic recoveries, he said during a conference call. "We remain cautious."

    Chairman and Chief Executive James Dimon said in a news release, "While we are seeing some stability in delinquencies, consumer-credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious."
    Update: And more JPMorgan from HousingWire: JP Morgan Posts Q4 Profit Despite Mortgage Losses