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JPMorgan Scales Back Home-Equity Lending

The bank tells mortgage brokers it will no longer write second liens worth more than the connected homes.

JPMorgan Chase

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is again tightening its lending policies -- this time pulling back from riskier home-equity loans.

The New York-based bank is tightening lending standards on home-equity loans made through brokers nationwide, according to a memo sent to mortgage brokers this week and obtained by


Starting Monday, the company will no longer make home-equity loans in which the so-called combined loan-to-value ratio of the first mortgage (which may not necessarily be a loan made by Chase) and the home-equity loan equal 100% or greater than the value of the home.

The changes are taking into account falling home values and prices in various states that have been hit hard by the mortgage deterioration, the bank said. JPMorgan Chase makes loans directly and through brokers across the country.

"Chase is committed to remaining in the wholesale business and in doing such, finds that we cannot afford to be in a position of lending at or above 100% loan-to-value, especially after accounting for falling home prices," the memo said.

New Jersey is one example, it said. JPMorgan Chase is "capping" the combined loan-to-value on home equity loans at 80%. The cap will be even lower in certain hard hit counties.

The bank also plans to stop making brokered home-equity loans on condominiums in Florida.

JPMorgan Chase, like other banks, has been reviewing its lending guidelines on mortgages and home-equity loans that it makes amid the credit crunch. Tight credit has led to a massive shutdown of the secondary markets for mortgage-backed securities, while the decline in housing has caused borrower defaults to surge.

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Other banks including

Wells Fargo

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National City


have also scaled back their home equity lending practices as well.

In September, JPMorgan Chase

stopped offering certain Alt-A loans, particularly ones that required little or no documentation or income ratios. Last July, it stopped offering the troublesome 2/28 and 3/27 adjustable-rate subprime mortgages.

The bank plans to continue underwriting wholesale loans. "We're just becoming more disciplined," a spokesman said Thursday.

In general, the company is looking for lower loan-to-value ratios or "higher equity from the customer," more documentation and better credit scores from borrowers, the spokesman said.

Despite tightened lending standards, the spokesman said that JPMorgan Chase is gaining market share in mortgage and home-equity lending -- a theme that coincides with CEO Jamie Dimon's vision to grow its mortgage business. The company, citing the Mortgage Bankers Association, garners an 11% share of total originations, up from 6% a year earlier, according to a presentation that discusses fourth-quarter earnings.

Mortgage originations, which excludes home-equity loans, rose 34% last quarter from a year earlier, to $40 billion, it said.