JPMorgan Chase Claims That FHA Loans Are Government Backed Subprime Loans

FHA loans that were originally intended to give first-time buyers easy access to mortgages are being compared to the very loans that contributed to the housing crisis.

Kevin Watters, CEO of Chase Mortgage Banking told CNBC, “FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down. That’s subprime lending, and we’re not in the subprime lending business.”

Except for Wells Fargo, who announced they were exiting the market of FHA loans, the larger banks, still provide these loans in order to statisfy FDIC requirements of community investing. However, the larger banks like JPMorgan Chase only originate a a fraction of what they did during the housing boom. They have conceded the majority of the market to the smaller originators.

And Watters is calling on more oversight for smaller lenders offering FHA loans, “So you’ve got [originators] that aren’t as highly regulated, that aren’t as well capitalized, and I’m sure many of them do a great job, but there’s a lot of new ones out there, and I think it would be prudent to go check on them,”

Watters also told CNBC, “It’s not just the CFPB or Fannie and Freddie’s rules or Treasury’s rule’s or Ginnie Mae, who’s the servicer for FHA loans, you’ve got 584 different state and local rules too. So you’re trying to make sure you abide by all these different rules, and it just gets very complicated, very expensive, so for us in FHA, we’ve priced FHA for the risk we see in FHA, and so we’ve got a higher price than other people so customers are going to other places.”