JP Morgan’s CEO Jamie Dimon said that prime mortgages are “terrible” during the company’s earnings report which saw the Wall Street bank beat earnings estimates. The rapidly rising prime mortgage delinquencies may signal the second wave of the credit crisis; and one that we’ve been pointing to for a long time now.
In an article I wrote last year I said that “your FICO score can’t pay your mortgage” when times get tough, money gets tight and loans reset. I predicted that we would see a severe uptick in prime delinquencies and suggested that credit scores were overweighted in loan underwriting. Alas, I appear to be right.
Dimon also issued a refrain that I’ve been bandying about for a long time - “we’re very early” in the mortgage loss game.
See the below graph (from Housing Wire) that shows the exponential growth in mortgage delinquencies in JP Morgan’s prime mortgage portfolio.
From Housing Wire:
Part of that weak economic outlook can clearly be attributed to mortgages. In a surprisingly short conference call with analysts, Dimon suggested that losses in JP Morgan’s prime mortgage book could triple in the foreseeable future as the credit mess moves out of subprime and into Alt-A and jumbo loans.
30-day delinquency trending among JP Morgan’s prime mortgage porrfolio. (Source: investor presentation)“Prime looks terrible,” he told analysts on the call. “And we’re sorry, and there’s nothing else we can say.”
The company currently holds $34.4 billion of jumbo mortgages, along with $2.5 billion of Alt-A mortgages. Net charge-offs among prime loans in the second quarter rose to $104 million, more than double the $50 million recorded just one quarter earlier. JP Morgan jumped in headlong into jumbos and Alt-A mortgages during 2007 — obviously an ill-timed bet, given where the market has headed.
“We were wrong, we obviously wish we hadn’t done it,” Dimon told analysts. “We’re very early in the loss curve.”
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