The role played by JP Morgan Chase in inflating the mortgage bubble was not limited to pushing the worst kind of subprime loans on mortgage brokers. It was also heavily involved in mortgage securitization and derided fears of a housing bubble as “excessive.”
This morning we pointed to an item by New York Times business writer Joe Nocera demonstrating that JP Morgan was pushing low-doc/no-doc loans on mortgage brokers and reprinted an advertisement from 2005 in which JP Morgan promised mortgages to anyone who could sign there name.
JP Morgan was also heavily involved in the other side of the mortgage mess: manic securitization built on the claim that there was no bubble house prices or home building. In the document we reprint below, JP Morgan derides “excessive concerns about housing bubble.” Home equity securities are described as “one of the best value opportunities in the fixed income market.” Selling these mortgage backed securities created a huge demand for more mortgages, fueling the housing bubble.
To be fair to JP Morgan, they were hardly alone in this view. Many economists, including those at Bear Stearns and Fannie Mae, were insisting that the housing bubble didn’t exist. What’s more, this document about the outlook for 2005 was authored at the end of 2004, several months before the mortgage market hit the peak of madness and at least a year before the market began to meltdown. The worst vintage mortgage backed bonds weren’t issued until 2006 and 2007. But it was this kind of analysis that helped create the circumstances in which the housing bubble would get even worse.
And the analysis itself clearly missed or ignored the weakness of the 2005-vintage transactions. These began showing weakness as early as 2007 because of origination issues, such as aggressive residential mortgage loan underwriting, first-time homebuyer programs, piggyback second-lien mortgages, hybrid ARMs entering their reset periods, and the concentration of affordability loans.
Is it fair to hold the credit analysts at JP Morgan responsible for missing the weakness of the 2005 asset backed deals? The short answer is: yes. After all, the very same bank was promoting no-doc, signature only loans at the very same time. A close look at their own lending practices would have indicated trouble brewing in the mortgage market.