JPMorgan (JPM) Intends To Resume Offering FHA-Backed Loans

Following the initiative taken by the Housing and Urban Development (“HUD”) to ease worries related to mortgage sanctions in October 2019, JPMorgan (NYSE:JPM) is planning to restart offering mortgage loans insured by the Federal Housing Administration (“FHA”). The news was reported by Bloomberg, citing persons familiar with the matter.

The FHA provides insurance on mortgages that are originated by lenders for low-income borrowers, who otherwise would not be eligible for home loans because of their low credit scores.

JPMorgan started shrinking its FHA-backed lending operations in 2017 as “aggressive use” of the False Claims Act (FCA) made it too risky and also resulted in increased legal woes. In 2016, the company had to pay $614 million for wrongly underwriting mortgage loans and submitting the same for insurance coverage.

Apart from JPMorgan, big banks like Bank of America (NYSE:BAC) , Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) have coughed up more than $9 billion, in aggregate, to resolve several FCA litigations. Thus, the banks began scaling back FHA-backed lending. In fact, now the banks represent mere 15% of the total lenders that originate/provide mortgage loans to low-income borrowers, down from 45% a decade ago.

So, what’s prompting JPMorgan to resume offering FHA-backed loans?

The FHA-backed loans have a huge market. Per the HUD data, the FHA insured $215 billion in loans in 2019, representing more than 11% of mortgages issued in the country. With JPMorgan undertaking efforts to improve revenue mix, this is likely to provide some support. This will offer the company cross-selling opportunities as well.

Also, backed by an improving economy and relatively lower interest rates, if JPMorgan extends more loans to home buyers, its mortgage banking income will get some support. Though the bank’s mortgage fees and related income jumped 62% in 2019, it declined at a four-year (2016-2019) CAGR of 6.5%.

Demand for mortgage loans is already on the rise due to a decline in rates. Thus, if JPMorgan starts originating FHA-insured mortgage loans, it would help in relieving pressure on net interest margin to some extent.

Nonetheless, JPMorgan is likely to face competition from other FHA loan providers like Penny Mac Financial (NYSE:PFSI) , Flagstar Bancorp, Inc. (NYSE:FBC) and Hilltop Holdings Inc.

Shares of JPMorgan have rallied 25.2%, outperforming the industry’s rise of 17.6%.



Currently, JPMorgan carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.7% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

JPMorgan Chase & Co. (JPM): Free Stock Analysis Report

Bank of America Corporation (BAC): Free Stock Analysis Report

PennyMac Financial Services, Inc. (PFSI): Free Stock Analysis Report

Flagstar Bancorp, Inc. (FBC): Free Stock Analysis Report

Original post