On Wednesday, JPMorgan Chase & Co. (JPM) announced that it is stopping nearly 56,000 foreclosures. The company said that it will verify many of the loan documents that some of its employees may have singed without properly verifying the authenticity of the information in them. The verification includes the accuracy of the loan information, including who owns the mortgage.
All the suspensions are in the 23 states including Connecticut, Florida, Illinois, New York and New Jersey, where foreclosures have to be approved by the court. JPMorgan has asked the judges to put on hold the verdicts regarding these foreclosures until the company completes its review. The review is expected to take a few weeks and the company will submit updated affidavits.
JPMorgan’s move is similar to General Motors Acceptance Corporation (“GMAC”) Mortgage LCC, which had last week revealed that some of its employees might not have checked the information in the foreclosure documents filed in the court. GMAC Mortgage has also suspended foreclosures.
GMAC Mortgage LCC is an indirect wholly owned subsidiary of Ally Financial, one of the largest financial services companies in the world. Ally Financial is the official preferred source of financing for General Motors Corporation (MTLQQ), Chrysler, Saab and Thor Industries Inc. (THO).
Apparently, JPMorgan and GMAC Mortgage were in a hurry to process thousands of foreclosures as fast as possible to get those properties on the market, and had employed a large number of people to sign documents. These employees did not properly check the documents, which led the company to stop these foreclosures for the time being.
Apart from JPMorgan, Bank of America Corporation (BAC), Citigroup Inc. (C) and Wells Fargo & Company (WFC) are some of the top foreclosure providers. If such issues crop up for these companies as well, we might be facing a foreclosure crisis, which could be expected to be a drag on the economy for many years.
At a time when the financial and banking sectors are trying to rebuild their images, such disclosures are indicative of a bigger mess that might have been swept underneath the carpet earlier. This could even protract the housing crisis in the country for several years.
The halt of foreclosures will probably have a negative impact on investors’ sentiments. While we anticipate continued synergies from JPMorgan’s diversified operations and strong capital position, pressured credit quality and reduced levels of client activity will drag future earnings.
JPMorgan currently retains its Zacks #3 Rank (short-term Hold rating), implying that the stock is expected to perform in line with the broader U.S. equity market in the near term. However, we are impressed to see some improvement in credit quality in the last three quarters. Therefore, we maintain our long-term Neutral recommendation on the shares.
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