Should We Believe Jamie Dimon’s Crocodile Tears Over How Much Mortgages Have Cost Banks?

Jamie Dimon told the press on Friday that the mortgage crisis has been costly (but not TOO costly) for JP Morgan. From MarketWatch (hat tip Lisa Epstein):

J.P. Morgan Chase & Co. Chief Executive Jamie Dimon said Friday that the foreclosure process is a “mess” that’s cost the financial-services giant a lot of money.

Dimon also said litigation over troubled mortgage securities is “going to be a long, ugly mess,” but won’t be “life-threatening” for J.P. Morgan….

“It is a big mess, it has cost us a lot of money,” Dimon said Friday during a conference call with analysts. “Unfortunately, the only way to do it right is name by name by name.”

“We will do as many as we can. There is a lot of paperwork. The paperwork is different in every single state,” Dimon added, according to a transcript of the call.

“There were multiple checks and balances and there may be mistakes made in the foreclosure process, but they are very few and boy, when we find them, we try to make up for them right away,” the CEO said.

Now this might seem to be at least a chink in the bank party line, right? The JP Morgan chief actually admitted that the mortgage mess was costly business and that the big bank had made at least some mistakes.

Not really.

Remember, these remarks came in a conference call in which JP Morgan announced higher than expected earnings for the fourth quarter. This is all posturing.

It is not clear that the high level of foreclosures would be costing JPM much money.

The increased costs of foreclosures for all serviced and securitized loans would presumably be passed on to investors. The bank might be paying more for staffing to manage the foreclosures, which would reduce the margin on the servicing fee.

The real intent is of Dimon’s comments to forestall calls for banks like JP Morgan (as opposed to chump investors) to bear more costs in connection with the mortgage crisis, via writing down second mortgages, taking putbacks, and incurring more expenses to facilitate mortgage modifications. The message thus is: “Despite these great earnings, we really are in a world of hurt in mortgage land, so don’t expect us to do more.” This positioning is no doubt intended to deflect criticism when the bank announces its bonuses, which are certain to be markedly higher than last year.

This is one of those myths the banking industry likes to perpetuate when it suits them. They piously pretend that they are taking their medicine and doing the hard and expensive work of fixing foreclosures. In reality, the costs are passed along and the risks of them doing a bad job are borne by someone else.

In addition, JP Morgan’s impressive-looking fourth quarter earnings were burnished more than a tad by under-reserving and the failure to take warranted writedowns (of course, if your regulators endorse extend and pretend, as they do, the banks get off scot free). JP Morgan has the second biggest book of junior mortgages, meaning second mortgages and home equity loans. The biggest four banks, which are also major servicers, have all taken to using seconds to extort borrowers who are delinquent on their first mortgages. If they were to foreclose, the seconds would be wiped out. But in cases where a borrower is trying to negotiate a mod or a short sale, the banks refuse to budge to preserve the fictive marks on their seconds. As law professor Katie Porter noted:

A persistent problem, pointedly described in these letters (July 10, 2009 and March 4, 2010) from Rep. Barney Frank to the large banks, is that the banks that hold second mortgages are not modifying those loans. (Yep, these are the same banks that took TARP money). The reluctance of the second lienholders to agree to a modification gums up the process for trying to get a modification on first, and usually much larger, mortgages. The investors in the first loan somewhat sensibly resist modifications, particularly those with principal write-downs, pointing out that it doesn’t seem right that they should take a haircut, while junior lienholders refuse to modify their loans.

In other words, some of last quarter’s $4.8 billion in earnings should have instead been applied to writing down JPM’s over $100 billion book of junior mortgages, particularly since $2 billion of those “earnings” came from reversing reserves taken for credit card losses.

In addition, other elements of the quarterly information looked to be weighing too light on residential mortgage risk. The bank originated $50.8 billion of new mortgage loans (loan origination fees were $749 million in the fourth quarter), yet made no reserves against them. Given that the GSEs are now vigilant about putbacks, wouldn’t realistic accounting require an ongoing reserve for originations, since the possibility of future representation breaches exists (especially given recent history) and the amount is unknown?

Banks like Chase face little in the way of competition, enjoy the benefits of super low interest rates, which is a transfer from savers to the financial system, and even worse, will be able to dump risk onto taxpayers if it screws up again in a serious way. Yet the executives and producer classes in big banks continue to earn lavish pay when the banks should instead be building stronger capital bases. It clearly benefits Dimon sound contrite rather than gloat too much about how much easy money he is making.

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  1. mannfm11

    Dimon is a liar just like his greedy former boss, Sandy Weill. What he is doing is pleading for the Feds to force the states to give in on this and kiss the banks asses. These SOB’s knew the paperwork laws in all of these states when they went in to do business. This isn’t rocket science. The Deeds of Trust are promulgated by the GSE’s for the most part for use in the various states. They are standard forms. The guy is a liar, a fraud artist and hopefully they will someday put him next to Madoff

  2. killben

    “of course, if your regulators endorse extend and pretend, as they do, the banks get off scot free”

    I see an end to the extend and pretend only after Fed and Treasury is sure that banks coffers are overflowing after paying out bonuses (king’s ransom) regularly .. This is a long way off..

  3. kievite

    All this anger about bonuses and regulatory capture is misplaced.

    The banking system is an an extension of the state. They are important foot soldiers in fiat currencies wars. And they are paid as such. As one Roman Emperor instructed his sons “Mind the soldiers and ignore everyone else”. So this is not a question of bankruptcy/restructuring, but the question of the timing and size of the next bailout.

    We need to understand that in no way Washington will agree to restructure the largest banks due to truths restructuring will reveal. That means that the policy of the Fed and Treasury with respect to the large banks is and will be state socialism, without any pretenses of a public good.

    As JP Morgan I think problems that Chris Whalen pointed out in December for Bank of America are applicable:

    “We understand what the problem is for Bank of America. They are insolvent. They still have huge losses to take on their mortgage book, and balance sheet. They also have to deal with everyone wanting them to buy-back mortgages.”

    “By this time next year the majority of home sales will be involuntary – more foreclosure sales than normal sales.”
    “We haven’t seen the peak of foreclosures yet. That will come 12 months from now.”

    “QE and QE2 are just hidden subsidies for the big banks.”

  4. Max424

    Do you think when Chairman Dimon and the President are out golfing, and Jamie snaps a duck hook into the left swamp, the President says to him, “Don’t worry about it, Jamie. Hit another. Mulligans and loose scorekeeping are what we’re all about here. Besides, it wasn’t your fault, the hazard shouldn’t be there. Faulty course design, don’t you know; I’ll order the d+mn thing removed.”

    And if Jamie has a really tough day, and towards the end of the round, the course has proven so treacherous, it’s gobbled up all of his golf balls, do you think the other member of the threesome, Gentleman Ben Bernanke, says, “No problem Jamie. I have an endless supply of golf balls in my bag. Take as many as you need.”

    1. attempter

      I’d bet anything they’d want to say it, but would be afraid of insulting him. And if they saw him cheating, not only wouldn’t they object, they’d feel relieved. They’d also probably admire him for it. I’m sure Obama would. I’m not kidding.

  5. Art Eclectic

    My heart bleeds for Dimon. Really it does.

    Too bad nobody thought about all those costs when they were handing out jumbo loans to anyone who could fog a mirror on assets that were in overpriced into outer space.

    Income documentation is a b**ch, ain’t it?

    1. readerOfTeaLeaves

      Oh, and then claiming those loans as ‘assets’ on their books.
      The Guardian also reported on the JPM bonuses (“Anger as JP Morgan bankers get $10bn pay and bonus pot”).

      Poor Jamie.
      All those tears.
      If he were still a capitalist, he could at least blame it on ‘markets’, but that ideology seems rather frayed in view of $10 bn bonuses for a government bailed-out mess.

  6. craazyman

    . . . and not one word, apparently, about what it’s cost the folks across the nation — emotionally, financially, psychologically — or the nation as a whole — in terms of shared sense of community or national psyche. How quaint.

    It’s just “me, me, me.” But what have we come to expect from our “leaders” in all areas of life?

    [I did not listen to the call or read the transcript, so maybe I’m uninformed, excessively emotional and unfair, it’s happened before. LOL.]

    But if there’s even one bankster-bonus-bozo-sanctity-of-contract-jackass who believes, or even comprehends, something larger than his own sorry ass, I’d be very curious what his position would be on the nature and structure of our financial system — and the implications for democracy and long-term society-wide wealth creation.

    And on the wanton lawlessness on the mortgage doc front and the banks’ senior management’s utter complicity in failing to see it or ignoring it every step of the way. I mean, what do these guys get paid to do? Play golf? I’d hate to answer that.

    It seems to me they have perfected the assembly of a loot machine. And our so-called govermint is utterly disinterested in “establishing justice”.

    And don’t get me started on the hedge funds. Leveraging beta and taking the 2 and 20. And they all crowd the trades and then the Fed has to rescue the whole boatload when they sink, like LTCM back in the day. I mean really. And when it collapses, shut down and reboot. This is money-murder-looting and it should be against the law.

    The entire financial system and the ways to game it at public expense seems little more than criminality — or what should be criminality. Or if not criminality, at least regulated with enlightened insight into money/property/spirit and civilization.

    But we live in an age of idiots. The big idiot-wind, blowing every time they move their mouths . . .

    I can’t watch TV or even read the news sometimes. It’s death in every direction.

    1. craazyman

      They don’t understand money. The so-called Economists — not 1 of them. Not 1.

      They understand that money derives from barter which derived from separation of tasks within a tribe. But why the tasks themselves. Why the hunting, the canoe making, why the tanning of the hides, why the cultivation of the corn, why the harvest, why? why? Why the creation of myths and songs and legends? Why the exchanges of gifts and tributes and tokens of affection? And how did money become a substitute for all this?

      It’s because money is life spirit like celestial blood flowing through the Gnostic Awareness of Imagination and Collective Consciousness, it’s the disembodied spirit of the tribal collective, which defines its boundaries with common myths and common legends. It’s the living embodiment of Eros (the spirit of affection and love and life) and Thanatos (destruction and death). Like everything, it contains opposities, antipodes, dialecticals, yins and yangs.

      And so the mathematicians cut and slice money and cut and slice it with equations and call it “risk” and call it “return”. Return of what? and risk of what?

      They have not a clue. They know the surface but not the content. Some piece of shit TV in the living room. Some car in the garage? Some lap dance? Some can of dog food?

      And their equations assume the Eros and ignore the Thanatos. And they call that “efficiency”. And they dismantle the barriers against Thanatos like thieves working on a bank safe. And they think they’ve discovered a new Diety a new Rain God, a Rain God that is all Eros and no Thanatos. ha ha ha. As if there evere were that. And the proselytize for their rain God like Roman armies, and their temple is the Colliseum and the Games.

      Ignore your demons at your peril. They are protean they’ll come at you smiling like some new and enchanting friend. A friend with a promise, if only you’ll just __________. Just trust him for a minute or two and then.

      How big Morons are these Morons? Pretty damn big.

      -The Reverend Bloviatius Ventriloquix, IV
      Church of the Holy Moly Roly Poly

    2. Michael H

      craazyman says: “I can’t watch TV or even read the news sometimes. It’s death in every direction.”

      The only time that TV “news” (if you can call it that) is ever worth watching is when things do not go according to plan, such as the following exchange that took place when CNBC had Sylvain Raynes on as a guest in April 2010 to discuss Goldman Sachs fraud charges.

      After every CNBC reporter had spent the entire afternoon defending Goldman, Raynes started off by asking the host: “I’m pleased to be on this show, since most of your previous guests were public relations officers for Goldman,” he said. “Is it ok if I’m a little critical?”

      And then it continued as follows:

      Sylvain Raynes: Oh, Mr. Cramer. I’d like to remind you that the word is Abacus not Abaakus. Now I’d like to answer the question, Erin, if that’s ok.

      Cramer: Not if you make a charge like that, no! That implies that I take money from Goldman Sachs. I resent that!

      Erin Burnett: Uh, yes, but please refrain from making any personal allegations about people on the show; if you could refrain from that.

      Sylvain Raynes: Mr. Cramer, Mr. Cramer, please let me answer you’ve had your chance.

      Jim Cramer:Take back your charge that I took money and I will.

      At this point Raynes closed his eyes as if looking for how to respond to Cramer’s bullying censorship threat. He may have been flustered because he never stated that Cramer took money from Goldman Sachs. Cramer injected that accusation on himself. Burnett then jumped in and allowed Raynes to continue, despite Cramer’s threat.

      Sylvain Raynes: It’s quite possible that Goldman had an equity position, they probably wrote it off on the closing date. So they stood to lose a few million and make a few hundred million… Goldman was clearly in the know, they knew what they were doing. In fact, if they are defending themselves against a fraud charge they will have to make a case that they didn’t know. I think too highly of Goldman Sachs to think that they didn’t know what they were doing… These deals were made to be shorted.

      Then comes the kicker

      Sylvain Raynes: We don’t have time to go into detail. I’ll keep it shallow in deference to Mr. Cramer.

      At which point all hell breaks loose.

      Erin Burnett: Hey, hey, hey, hey, hey, hey. I asked you to please not say derogatory things about my colleague. You can’t say that on this show, Sylvain. Make your point please, but graciously, Sylvain.

      Jim Cramer: What is this nonsense? Don’t give me this ad hominem nonsense, come on partner. I wasn’t knocking you.

      Sylvain Raynes: I’m sorry we can’t go into details. These deals were extremely difficult to understand. It’s clear that the banks that invested in them didn’t understand them. Mr. Cramer is correct on this they should have done their own research. They should not have invested in them but they did so in some sense they are also complicit on this entire scheme. It takes two to tango and Goldman Sachs probably is just like everybody else trying to make an honest buck on Wall Street.

      At this point, co-host Erin Burnett decided CNBC has enough of this Goldman Sachs bashing so she quickly jumped in.

      Erin Burnett: All right. We’re going to take a brief break. We’ll be back in just a second. Sylvain will not be with us. Sylvain, you’ve got more more polite than that. We’ll be back in a moment.

      End of interview

      Because it’s only hilarious moments such as the one above that reveal the irremediable void and the depth of the emptiness looking out at us from that little screen.

      1. mannfm11

        Michael, it is funny because he said they were trying to make an “honest” buck and they kicked him off.

  7. indio007

    Dimon thinks every are fools. The law surrounding promissory notes has not changed since Lord Mansfield …

    It is in substance the same in all states. There are procedural nuances but that is it. If your proof of debt is solid then all the procedural difference in the world don’t matter.

    The problems come when these banks try and twist and bend the law. They twisting and bending then complicates things.

    It isn’t called the UNIFORM Commercial Code for nothing.

  8. Phil

    I agree with a lot of the thoughts in the above piece, but might I respectfully ask if the true situation isn’t 180 degrees the other way….that the mortgage mess HAS cost them a lot of money (which they are not recognizing in their published accounts), and that the posturing is actually in the numbers – the results announcement, and, more importantly, in the balance sheet.

    I continue to believe that the balance sheets (and the quarterly results) of the mega-banks bear little or no relationship to reality – that the banks, with the implicit and explicit help of the authorities (because if the general public knew the true state of the banks’ balance sheets…..), are simply repeating the strategy from the LatAm debt crisis – that of valuing their assets at “lala-land valuations”, and then writing them down gradually to realistic valuations (mostly zero) over the next 10 years or so as they generate earnings.

    The differences this time, of course, are that a) virtually the whole world has solvency issues of one sort or another, and b) the global economy isn’t chugging along at anywhere near trend allowing these “holes” to be filled reasonably quickly.

  9. Laurie

    Jamie Dimon is a liar and a crook who has an inflated sense of self.
    BOYCOTT JP MORGAN CHASE-it’s the only way!!!

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