Will JPMorgan settlement will hurt efforts to privatize mortgage market?

by Ryan Smith25 Nov 2013
The terms of JPMorgan Chase’s record $13bn mortgage-bond settlement with the government will undermine Washington’s efforts to move mortgage-market risk from taxpayers to private capital, according to the world’s largest money manager.

BlackRock, Inc., has criticized the settlement as unfair to investors, according to a Bloomberg report. That unfairness, says BlackRock, will cause investors to shy away from pumping capital into the mortgage market.

“Washington has a public policy goal of reducing the role that the government plays in the housing-finance market, and at the same time we now have a series of settlements where no investors were at the table and where money toward the settlements may come from investors’ pockets,” BlackRock Vice Chair Barbara Novick told Bloomberg. “It discourages the allocation of private capital to mortgage credit."

Under the terms of the settlement, JPMorgan admitted that it misled investors about the quality of its mortgage-backed securities. The lending giant also must allocate billions of dollars to helping underwater homeowners, writing down loan values and lowering monthly payments – a requirement which finance analytics firm Graham Fisher & Co. analyst Joshua Rosner pounced on.

“These were claims about investments where investors were misled,” Rosner told Bloomberg. “Why is money going to consumers?”

Justice Department spokesperson Adora Andy Jenkins told Bloomberg that JPMorgan would only give underwater homeowners loan modifications “if they are in the best interest of the investor and in accordance with the bank’s agreements with the investors. So when these modifications are made, it’s because they’re good for investors, consumers and neighborhoods across the country that are still recovering from the financial crisis.”

But Novick wasn’t buying. “That’s hard for us as investors to measure,” she said. “We don’t get enough transparency into what’s going on.”


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