Mortgage & Loan: Banks See Recession Due To Housing Failures

While most of the business press has been consumed with the "not news" that is Maria Bartiromo's cozy relationship with Citigroup execs, Marketwatch is thankfully finding some spare time to look into a much more serious story...namely that the CEO of one of the world's largest financial groups thinks that a recession may be coming, due not least to the failures of the subprime lending market:

NEW YORK (MarketWatch) -- Rising defaults in some of the riskiest home loans offered by J.P. Morgan Chase & Co. signal a recession may be looming, Jamie Dimon, the bank's chief executive said Tuesday.
Dimon, speaking at Citigroup's annual financial services conference, said high-risk loans - as measured by credit scores and loan-to-value ratios of 90% or more -- make up 2% of the bank's home equity portfolio, Dimon said according to a live webcast. He also said defaults are rising at J.P. Morgan "a little bit," adding, "home equity is subject to deterioration" from a recession, but that the bank is well positioned to sustain a downturn in the economy. The bank has largely exited the subprime lending area.

So check it--now that foreclosures are on the rise and people are defaulting on loans in greater and greater numbers, Chase is doing the full-tilt boogie out of the subprime sector as fast as its stubby legs can carry it.

Calculated Risk finds further evidence of tighter lending standards on the horizon as well:

JPMorgan said in the presentation that "loss severities" in subprime mortgages have started increasing, and that delinquencies of subprime loans originated last year are higher than the 2005 and 2004 vintages were at a comparable age.

So, tighter credit means less lending, which means diminished portfolio returns, which leads to less in the way of capital for investment, which means less hiring, which means fewer jobs....which means a recession?

Posted at January 31, 2007 12:28 PM

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While most of the business press has been consumed with the "not news" that is Maria Bartiromo's cozy relationship with Citigroup execs, Marketwatch is thankfully finding some spare time to look into a much more serious story...namely that the CEO of one of the world's largest financial groups thinks that a recession may be coming, due not least to the failures of the subprime lending market: NEW YORK (MarketWatch) -- Rising defaults in some of the riskiest home loans offered by J.P. Morgan Chase & Co. signal a recession may be looming, Jamie Dimon, the bank's chief executive said Tuesday. Dimon, speaking at Citigroup's annual financial services conference, said high-risk loans - as measured by credit scores and loan-to-value ratios of 90% or more -- make up 2% of the bank's home equity portfolio, Dimon said according to a live webcast. He also said defaults are rising at J.P. Morgan "a little bit," adding, "home equity is subject to deterioration" from a recession, but that the bank is well positioned to sustain a downturn in the economy. The bank has largely exited the subprime lending area. So check it--now that foreclosures are on the rise and people are defaulting on loans in greater and greater numbers, Chase is doing the full-tilt boogie out of the subprime sector as fast as its stubby legs can carry it. Calculated Risk finds further evidence of tighter lending standards on the horizon as well: JPMorgan said in the presentation that "loss severities" in subprime mortgages have started increasing, and that delinquencies of subprime loans originated last year are higher than the 2005 and 2004 vintages were at a comparable age. So, tighter credit means less lending, which means diminished portfolio returns, which leads to less in the way of capital for investment, which means less hiring, which means fewer jobs....which means a recession?