JP Morgan Chase exits the Wholesale Mortgage Business

Last week JP Morgan closed its Wholesale Mortgage Division. There Wholesale Division worked with Mortgage Brokers to fund home loans for borrowers. Chase said that one of the major reasons for this move was because of the under performing loans Mortgage Brokers sent to Chase. Because Chase underwrote the loans they received from the Mortgage Brokers it is more likely Chase’s guidelines along with a drop in Mortgage Broker business lead to the closing of their wholesale division.


Today Wholesale Lenders face many problems from the Mortgage Broker Business. Mortgage Brokers are normally not as financial sound as Mortgage Banks and Mortgage Companies. Wholesale lenders do not have the same buy back policies for Mortgage Brokers as they do for other types of mortgage companies. Because the Mortgage Brokers are sending Wholesale Lenders loans one at a time, Mortgage Brokers are offered slightly higher rates than Mortgage Bankers and Mortgage Companies are offered. In this competitive market borrowers are shopping for the lowest rates and many times Mortgage Brokers and not compete with larger Mortgage Bankers or Mortgage Companies for these customers.


Another factor that causes problems for Wholesale Lenders and Mortgage Brokers is the increase need of FHA and VA financing and the lack of Convention Lending. Some lenders are reporting 300% increase in FHA and VA business. FHA and VA require Mortgage Brokers to have stronger financials than non FHA/VA approved Mortgage Brokers. Mortgage Brokers who are not approved for FHA and VA lending are limited to only a few convention loan products.


With the lack of volume from Mortgage Brokers, coupled with the current mortgage slow down, and lack of Brokers who are FHA and VA approved, JP Morgan Chase’s decision may be the beginning of the end of the Wholesale Business. If other Lenders like Countrywide decide to follow Chase’s lead closing their Wholesale Divisions it will be very difficult for Mortgage Brokers to have sources to fund their borrower’s loans. If there is more slow downs, this may cause the rest of the Wholesale Companies to stop this business channel.