1/14/2009

Another blow to the broker industry. JPMorgan Chase & Co. is closing down its remaining wholesale channel and will no longer offer prime mortgages through brokers, the New York banking company said Tuesday. Spokeswoman Christine Holevas said in an interview with American Banker Tuesday that JPMorgan Chase had made a "strategic decision" to "no longer purchase loans originated by brokers." The company will instead focus on direct-to-consumer originations, especially though its branches. The retail branch origination channel "has been a very, very successful channel for us," she said. "Customers like to work directly with their mortgage officers, and we have found that default rates are significantly lower." JPMorgan Chase's purchase of Washington Mutual Inc. last year, which bulked up its branch network to more than 5,000, also contributed to the decision to focus on direct originations through retail mortgage and branch locations, Ms. Holevas said. This is the final step away from wholesale originations for JPMorgan Chase, which spent last year unwinding itself from that channel. It stopped offering subprime and home equity loans through third-party brokers in May, and stopped offering nonagency jumbo mortgages in August. And in September, JPMorgan Chase announced plans to close four of its eight wholesale mortgage operations centers by the end of the year. Up to 800 employees may be eliminated along with the channel, although Ms. Holevas said, "We don't think it's going to be that" drastic because of a spike in refinance applications. Because JPMorgan Chase's refinanced mortgages have nearly tripled, "we need underwriters" and others, she said. "We're redeploying talent." She said the shutdown would take time to "wind its way through" the company and did not immediately know when it would be fully effective. She would not discuss facilities, including the fate of the four remaining wholesale mortgage operations centers, which JPMorgan Chase said in September would be enlarged "to absorb processing from" the closed ones. (Nat'l Mtg News)

“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” .....Bernanke in his speech at the London Scholl of Economics this morning. As we have noted stimulus package may have some benefit but not enough to turn the sinking ship around. Fiscal stimulus sounds good, and it is necessary but until the banks are cleaned up and functioning normally the economy can't make the turn.

The Fed chairman is realizing that the TARP money ($700B) has been directed in the wrong way, also as we have suggested here. The government has to buy or guarantee the "assets" sitting on the banks books that are in any other way is deeply under water and keeping banks from moving forward. Some are thinking Bernanke's remarks in his speech was his way of trying to influence Congress to use the rest of the TARP funds ($350B) to buy or in some manner remove the junk from banks' balance sheets. The government could agree to absorb, in exchange for warrants or a fee, part of the losses on a specified portfolio of troubled assets. Regulators used that method recently with their bailout of Citigroup Inc.

In another speech today, Fed Vice chair Kohn added his thoughts; use the rest of the TARP money to reduce foreclosures, help revive credit markets and continue direct aid to banks. “Although a number of efforts are under way to address the problem of preventable foreclosures, more needs to be done,” Kohn said in testimony prepared for a House Financial Services Committee hearing.

Although we deem the remarks today as significant; the Fed sounds like it is increasing its concern and coming out swinging instead of too little too late and in the wrong places that have marked Paulson's moves thus far, there has been little movement in the bond or mortgage markets all day.

Tomorrow Dec retail sales at 8:30; expectations are for sales to have declined 1.1% and when autos are extracted, down 1.2%. Nov business inventories are seen at -0.5%. Dec import and export prices are also out at 8:30 along with retail sales. Being Wed the weekly MBA mortgage applications and weekly crude oil inventories will be reported, (7:00 AM and 10:35 respectively).

Crude oil moved higher today after seeing strong selling in the past week. Crude was at $37.50 yesterday, back to its recent low levels at $36.50.

Bernanke's comments today, along with recent comments from Barney Frank, add more conviction that there is increasing momentum to get the housing sector moving with lower mortgage rates. What isn't being addressed outwardly is the huge fee pile-on that agencies, MIs and wholesalers are doing to offset the markets' moves to those lower rates.