The purchases, which can boost profit, come amid a sharp drop in mortgage applications. It's a move that rival Bank of America considers risky. Fred Katayama reports.
JPMorgan Chase is making a move that rival Bank of America considers risky: buying more home loans from smaller lenders than it's originating. Such loans have grown to 62 percent of its mortgages in the first half this year --- up from 37 percent four years ago. That's the biggest increase among any bank, according to Inside Mortgage Finance. So-called "correspondent loans" can beef up profit because it's cheaper to buy loans than issue them at branch offices. Portales Partners bank analyst Charles Peabody said, "As they gain more confidence about the environment, they go right back to the correspondent channel for more volume." Morgan is buying more home loans because it's getting harder to originate them. Fewer people are applying for mortgages. Bank of America, by contrast, avoids correspondent loans. It wants to shun bad decisions made by smaller lenders. BofA's smarting from its 2008 acquisition of Countrywide Financial, which got stung from the many bad loans it bought from smaller lenders. JPMorgan may be upping the risk. But its head of correspondent lending says the bank's confident about its loan purchases because it reviews every loan in detail.