Monday, November 15, 2010

Lenders disclose mortgage woes

By Suzanne Kapner in New York

Goldman Sachs and JPMorgan Chase on Tuesday disclosed further details about problems plaguing their mortgage servicing units.

JPMorgan said it was the subject of two lawsuits seeking class action status that accuse the bank of violating consumer fraud statutes related to its foreclosure practices.

The bank, along with other lenders, such as Bank of America, GMAC and Litton Loan Servicing – which is owned by Goldman Sachs – temporarily suspended foreclosures in October after finding that employees had approved court documents without checking their accuracy, as required by law. The problems have prompted an investigation by the attorneys-general of all 50 states.

Both JPMorgan and Goldman said in regulatory filings on Tuesday that they were co-operating with the attorneys-general investigation.

Goldman said it did not expect the suspension of evictions and foreclosures to “lead to a material increase in its mortgage servicing-related advances”.

It said that, as of September 30, its mortgage servicing rights were not large enough to have an impact on the overall firm.

Both banks face demands by investors to repurchase mortgages that failed to meet underwriting guidelines.
JPMorgan said its liabilities from such demands rose to $3.3bn at the end of the third quarter, against $2.3bn three months earlier.

Cambridge Place Investment Management and Charles Schwab have sued JPMorgan and other lenders over repurchase claims.

Goldman said that while there remained “significant uncertainty” surrounding such demands, its loss from repurchase requests had so far been “immaterial”.

Through the first nine months of 2010, Goldman repurchased less than $50m of such loans, far less than some of its competitors.

For instance, in 2005-08, Goldman sold about $10bn in loans to Fannie Mae and Freddie Mac, the government-owned mortgage finance companies, and $11bn to private investors.

Over the same period, JPMorgan sold $380bn in loans to the government-owned entities and a further $450bn to private investors.

Factoring in loans sold to Fannie and Freddie by Washington Mutual, which JPMorgan acquired in 2008, a further $150bn of loans are subject to potential repurchase demands.

Separately, Goldman traders lost money on two days during the third quarter, but each time losses did not exceed $25m. The bank’s trading desks booked more than $100m in net revenues on seven occasions.
JPMorgan’s securities unit had notched up trading gains on every single working day last quarter, in spite of subdued market conditions, the filing showed.

It is JP Morgan’s second “perfect quarter” in trading, following a similar feat in the first quarter of the year.
In the first nine months of 2010, JPMorgan suffered trading losses on eight days, all in the second quarter, when its commodity division was hit by a lossmaking bet on the price of coal.

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