JPMorgan Chase & Co., the second-largest U.S. bank, ousted mortgage chief David Lowman after it overcharged active-duty military personnel on loans and improperly foreclosed on other borrowers.
“Dave Lowman and I have decided he will leave the firm,” Frank Bisignano, the head of home-lending, said today in an internal employee memo obtained by Bloomberg News.
JPMorgan has been taking steps this year to repair its mortgage unit, which posted at least $3.3 billion in losses during the first quarter. Lowman, 54, who ran home-lending since leaving Citigroup Inc. in 2006, was directed in February to start reporting to Chief Administrative Officer Bisignano, 51. The New York-based bank then hired Cindy Armine, Citigroup’s chief compliance officer, last month to increase oversight as chief control officer of home-lending.
“We thank Dave for his five years of service to our firm,” Bisignano said in the memo. “He worked here during extraordinary times and has said he will take some much needed time off.” A message left at Lowman’s office wasn’t immediately returned.
U.S. banks are dealing with the backlash from a bust in housing as mortgage losses and related litigation suppress earnings. Home prices in 20 U.S. cities fell 5.1 percent in the first quarter, the largest decline since the first quarter of 2009, according to the S&P/Case-Shiller index.
Chief Executive Officer Jamie Dimon, 55, said JPMorgan’s record $5.6 billion in profit during the first quarter was tempered by “extraordinarily high losses we still are bearing on mortgage-related issues.”
“Unfortunately, these losses will continue for a while,” Dimon said in a statement on April 13 when the bank reported results. JPMorgan’s performance has been hampered by poor performing mortgage portfolios acquired when it bought Washington Mutual Inc. and Bear Stearns Cos. in 2008.
In April, JPMorgan agreed to pay $56 million and to reduce mortgage rates for all deployed soldiers to settle claims that it overcharged military personnel on their mortgages and seized homes of 27 active-duty military personnel who were protected by the Servicemembers Civil Relief Act.
Dimon said the military foreclosures were the worst mistake the bank has ever made.
“We deeply apologize to the military, the veterans, anyone who’s ever served this country and we’re trying to go way beyond” what is needed to correct the errors, he said at the company’s May 17 annual shareholder meeting. “We’re sorry.”
The bank also has committed to hiring 100,000 veterans during the next 10 years, reduced the interest rate for active-duty soldiers to 4 percent from 6 percent for one year, agreed to forgive loan balances for anyone wrongfully foreclosed on and created a special loan-modification program for veterans.
Bank of America Corp., the largest U.S. lender, and Morgan Stanley’s Saxon Mortgage Services Inc. unit also paid millions of dollars to settle similar lawsuits with military personnel. Bank of America agreed last month to pay $20 million to settle a lawsuit alleging improper foreclosure on about 160 members of the military between January 2006 and May 2009, the U.S. Justice Department said in a May 26 statement. New York-based Morgan Stanley also agreed to pay $2.35 million to resolve a lawsuit alleging it improperly foreclosed on 17 service members between January 2006 to June 2009.
“Bankers are not well-liked. It’s the negative headlines, banks foreclosing on the military while they’re fighting a battle overseas,” said Paul Miller, a former examiner with the Federal Reserve Bank of Philadelphia and analyst with FBR Capital Markets in Arlington, Virginia. “It’s killing them.”
JPMorgan is among the five largest U.S. mortgage servicers in negotiations with the Justice Department and state attorneys general to end regulators’ probes into the use of faulty documents in foreclosure proceedings.
Armine was hired, in part, to oversee a separate consent agreement that JPMorgan and 13 other banks reached with the Office of the Comptroller of the Currency and the Federal Reserve in April over foreclosure practices.
The Justice Department is suing Deutsche Bank AG for more than $1 billion, and has said it may go after other lenders for filing false claims for federal mortgage insurance on faulty loans.
The U.S. Department of Housing and Urban Development is also weighing a similar lawsuit against Bank of America after a federal investigator said the Charlotte, North Carolina-based lender “significantly hindered” the government’s own probe into the bank’s claims on $5.7 billion in loans insured by the Federal Housing Administration, according to a court filing dated June 1.
HUD Reviewing Claims
HUD is examining 40,219 FHA claims, about $5 billion of which came from the bank’s 2008 acquisition of Countrywide Financial Corp., submitted by Bank of America in fiscal years 2009 and 2010, which ended Sept. 30.
Bank of America fully cooperated with the HUD inspector general’s review and “any suggestion otherwise is both inaccurate and inconsistent with how we work with all regulators,” the company’s spokesman, Dan Frahm, said yesterday.
JPMorgan rose 22 cents, or 0.5 percent, to $41.89 at 11:36 a.m. in New York Stock Exchange Composite trading. Bank of America fell 5 cents, or 0.5 percent, to $10.92.