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JPMorgan Chase Chief Executive Officer Jamie Dimon told shareholders this week that the US housing finance system "desperately" needs to be reformed. He said the status quo in the housing market left at least $ 1 trillion worth of mortgages on the table.
Dimon made these statements in his annual letter to the shareholders, in which he comments on both the financial situation of the bank and that of the country.
Dimon is no stranger to the use of these letters to demand radical reforms. Two years ago, Dimon said that if some mortgage and loan service reforms were put in place, creations could grow by $ 300 billion a year. In the previous year, Dimon had claimed that the initial mortgages were a losing proposition to the bank, but that Chase continued to lend for the benefit of his clients.
Dimon reiterates its call for mortgage credit reform in the 2019 version of its letter to shareholders and says a "cautious" analysis of the mortgage market shows that the current lending environment has cost at least $ 1 trillion in loans over a five-year period, which could have been created had reforms been adopted.
"The country is desperate for a mortgage reform," wrote Dimon.
"It would contribute to US economic growth. Reducing the tedious and unnecessary origination and service requirements (there are currently 3,000 federal and national requirements) and opening the securitization markets to secure loans would significantly improve the cost and availability of mortgage loans for clients. consumers – especially young people, the self-employed and the past failures, "continued Dimon.
"And these mortgages would not be subprime, but mortgages that we should contract," said Dimon. "By taking this step, our economists believe that homeownership and economic growth would increase to 0.2% per year."
Homeownership has remained the same in recent years, but is still lagging behind historical levels. And according to Dimon, this could increase further with the mortgage market reform.
"In the early 2000s, bad mortgage laws contributed to the Great Recession of 2008. Today, bad mortgage rules hinder the good growth of the US economy," said Dimon.
"As many regulators are involved in the development of new rules, coupled with policy intervention that is not always helpful, it is difficult to achieve the long-awaited mortgage credit reform," he said. Dimon.
"It has become a critical issue and one of the reasons why banks have been losing important parts of the mortgage sector. This activity, in particular, highlights one of the flaws of our complex capital allocation regime, "said Dimon. "The best way to manage a bank's risk is to use risk weights that are really risk-based. However, since most banks are also constrained by standardized capital (a measure of equity that does not account for the lower risk of a good-credit-first mortgage properly subscribed), owning loans mortgage becomes extremely unprofitable. "
As Dimon writes, the cost of borrowing contracted and contracted has increased significantly since the housing crisis, which has prevented some lenders from remaining active in the mortgage sector.
Even Chase is not immune to the fact that Dimon said the company is currently reconsidering its place in the mortgage market.
"Because of these important issues, we are intensely reexamining our role in building, managing and retaining mortgages," said Dimon. "There is an increasing chance that we will have to make significant changes to our mortgage strategy in the future."
To read Dimon's letter in full, click here.
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