We recently learned that JPMorgan Chase (NYSE: JPM) made a new investment in a private label mortgage exchange, the latest in a series of investment activities by the banking giant. In that Fool Live video clip, written on June 29, Fool.com contributor Matt Frankel, CFP and Industry focus Host Jason Moser discusses investments and why JPMorgan Chase might be so interested in them.
Jason Moser: JPMorgan has been in the news recently, Matt, and this is because of the investment they are making in what appears to be a private mortgage exchange. This is where we saw these types of mortgages, eventually mortgages that are not supported Fannie as well as Freddie… This is what we saw, I think a little more on the 2008, 9, 10. Of course, the financial crisis that happened then, which of course was very tied to mortgages, really affected the US market. But it looks like he’s coming back a bit. I was reading this story and thought it was interesting because it seems like this is one of the reasons why this deal matters and one of the reasons it might end, at least for me, working just fine for JPMorgan , is that everything has changed. a little about how people own property, what they do with that property. It’s a sharing economy. This Airbnb The economy has given people a new way of using real estate, be it investment property, vacation homes, or whatnot. Essentially, there are restrictions that prevent organizations like Fannie and Freddie from selling mortgages. Perhaps there are some possibilities here. What do you think of this move by JPMorgan, does it make sense or is it unnecessary risk?
Matt Frankel: Yes, I love this step, and it is really important to draw the attention of investors to it, because when you hear alternative mortgages, especially if you were before the financial crisis. You think of things like those interest-free loans they used to sell, reverse amortization loans. Zero-payment loans they gave to people with 500 credit points to buy four and five investment properties. I remember when I was in college I got pre-approved for a $ 400,000 mortgage loan while I was waiting for tables. As in 2006, 2007, they paid tribute absolutely to the bananas and how much money they were willing to lend at that time. It’s not that alternative loans are returning, but for two important reasons. I love that Jason just mentioned vacation properties and investment properties because there are new rules that dictate how much, in particular, the percentage of loans to Fannie and Freddie, which can be of the two varieties. This was a hindrance when we recently bought a second home. This was a big obstacle to getting a mortgage loan. That Fannie and Freddie can no longer buy too many of them, which is why you see many alternative lenders stepping in and promoting this. Secondly, it is because of all these giant loans, as they are called, that you see in the market. Home values have risen by 20% or more in many housing markets. The loan amounts are getting too large for Fannie and Freddie to buy, which is why we see a lot of giant loans like this being part of this exchange that JPMorgan is investing in. The need for this will grow, especially if house prices jump a little more. But also because of this investment in vacation homes, because Fannie and Freddie just can’t buy them anymore. This is definitely a necessity, and there should be a marketplace where sellers can buy and sell them, because I am sure that after refinancing, you will receive an email stating that your loan is sold and this is where you send your payment due. pay now. … I send mortgage payments to Wells Fargo, that’s not who I got the mortgage through.
Jason Moser: Not. We ship ours now to Truist. I still can’t get used to it. He didn’t drive me for that Matt. This is similar to Truist, but we still have to login like SunTrust… This is completely confusing. Luckily I’ve got it set up, it’s just automatic payment, but we’re still dealing with two brands: BB, T and SunTrust. They didn’t completely bring them together. I know this is not an easy deal. I remember working with Bank of America Every time a new bank was entered into the system, it was not like pressing a button in the blink of an eye, everything was integrated. Integration lasts forever. In your opinion, they seem to fill the need. After all, this is the rule of economics, and where there is demand for something, someone will come there with a supply. I certainly understand JPMorgan’s point of view from this point of view. I am given what we know about this business given what we know about who runs it, and Jamie Dimon, CEO of the company. I do not consider this to be an extremely risky business. Now I could see managers who are perhaps more focused on the short term. It seems that making some bad decisions can be a little risky, like insurance companies that are more patient and just not chasing business, and after a longer period of time, you will see that their coverage ratio shows that they are efficient operators doing good business. … Whereas insurance companies chasing bad business eventually cease to be numbers. I think I would actually be worried about banks pursuing bad business, so to speak, in this market. Probably worth taking a closer look at. I don’t know what to really worry about from JPMorgan’s point of view is something that should be in the spotlight right now.
Matt Frankel: I guess they’ve noticed that this part of the mortgage business is becoming more and more important to them. As I said, it is the large loans that are really becoming an increasingly important part of the business. They wanted to stay ahead of the trend, as I understand why they made this investment. They don’t want this to happen without them if it becomes a really big part of the mortgage market. They enter the first floor.
This article represents the opinion of an author who may disagree with the “official” position of the Motley Fool premium advisory service. We are colorful! Bidding on an investment thesis – even our own – helps us all to be critical about investing and make decisions that help us become smarter, happier, and richer.