JPMorgan considers return to FHA loans

The nation’s biggest bank had pulled back from the program, saying government fines for errors were too onerous

JPMorgan considers return to FHA loans

JPMorgan Chase is considering a return to Federal Housing Administration-backed loans years after many banks abandoned the business.

The FHA insures $1.2 billion in mortgage debt. However, JPMorgan and other banks pulled back from the program because of the billions of dollars in fines the government levied for errors in FHA-backed loans, according to a Bloomberg report.

In 2017, JPMorgan CEO Jamie Dimon told investors that the government’s “aggressive use” of the False Claims Act made FHA loans too risky for banks. Dimon claimed that FHA-related fines had “wiped out” 10 years’ worth of profit at JPMorgan, and that more lenders would participate in the program if the False Claims Act were used to punish only intentional fraud instead of honest errors.

The withdrawal of the big banks from the FHA program has increased costs for lower-income borrowers and narrowed their options for financing, Bloomberg reported. The vacuum left by the big banks has been largely filled by nonbank lenders, which are more lightly regulated.

However, President Donald Trump’s administration has vowed to make it easier for lenders to avoid fines for mistakes in underwriting, prompting the banking giant to consider reentering the space, Bloomberg reported.

JPMorgan is the country’s largest bank, and its return to the FHA program would likely encourage other banks to revive their own FHA lending programs. Because most FHA homebuyers have modest incomes or are members of minority groups, FHA loans could be used to satisfy banks’ obligations under the Community Reinvestment Act, Pete Mills, senior vice president and the Mortgage Bankers Association, told Bloomberg.   

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