Banks Aim To Help Struggling Homeowners

Opponents of Proposition 8, California's anti-gay-marriage bill, celebrate outside the 9th U.S. Circuit Court of Appeals in San Francisco Feb. 7, 2012. / Getty Images

JPMorgan Chase & Co. on Friday became the latest major bank to beef up its mortgage modification efforts as the government also considers a plan to help homeowners avoid foreclosure.

JPMorgan's expanded program aims to help avoid foreclosures on an estimated $70 billion in loans, which could help as many as 400,000 customers. The New York-based banking giant has already modified about $40 billion in mortgages, helping 250,000 customers since early 2007.

JPMorgan will not put any loans into foreclosure as it implements the expanded program over the next 90 days.

"Lenders lose between $40,000 and $50,000 on every single foreclosure that they do," Francis Creighton of the Mortgage Bankers Association told CBS News. "Lenders are not set up to be property managers. We don't want to own these properties."

The $70 billion estimate is projected over a two-year period, but could be larger and last more than two years - as long as the company sees a need among troubled borrowers, said Charlie Scharf, JPMorgan's chief executive of retail financial services.

"We think it's the right thing to help as many people who want to stay in their homes," Scharf said in an interview.

Scharf said the modifications at JPMorgan will range from reducing rates to extending terms to completely replacing products. Modification options will be given to customers based on their current product and needs, Scharf added.

The program will also be offered to customers with loans held by Washington Mutual Inc. and EMC. JPMorgan acquired Washington Mutual last month after the bank became the largest in the nation's history to fail. EMC was a mortgage unit of Bear Stearns Cos., which JPMorgan acquired in February.

JPMorgan shares jumped $3.63, or 9.7 percent, to $41.25 on Friday.

With defaults mounting, lenders like JPMorgan and Bank of America Corp. have an incentive to get more aggressive about modifications, particularly because both lenders want to protect their brand image.

"These are very big, large retail banks," said Dain Ehring, chief executive of Dorado Corp., a San Mateo, Calif.-based mortgage technology company. "There's a vested interest in keeping their customers."

Bank of America has said that starting Dec. 1, it will modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion, legal settlement reached with state officials in early October.

Meanwhile, the Bush administration is expected to soon announce a new plan to help about 3 million homeowners avoid foreclosure, though administration officials say several different ideas are on the table, and that no announcement is imminent.

The plan would be the most aggressive effort yet to limit damage from the U.S. housing recession.

The uptick in loan modification efforts was kicked off in August by the Federal Deposit Insurance Corp., which took over failed lender IndyMac Bancorp in July.

More than 4 million American homeowners with a mortgage were at least one payment behind on their loans at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association.

Nationwide, almost one out of every five homeowners with a mortgage owes more to their lender than their properties are worth, according to a report released Friday by First American CoreLogic.

Credit counselor Natalie Lohrenz advises struggling homeowners to contact their lenders even before they miss a payment, reports CBS News correspondent Ben Tracy.

"You may have time to work with the lender to come up with a better payment plan that works better with your budget," said Lohrenz.

JPMorgan's enhanced program will include the opening of 24 regional counseling centers, the hiring of 300 additional loan counselors, new financing alternatives, reaching out to borrowers with pre-qualified modification terms and a new process to independently review each loan before it is moved into foreclosure.

Face-to-face meetings with customers and adding staff to help customers in their neighborhoods was a key part of the program, Scharf said, adding that JPMorgan worked with community groups and local organizations to draw up the plan.

One of the biggest stumbling blocks JPMorgan has found in trying to modify loans is actually getting in touch with customers, he added.

When JPMorgan acquired Washington Mutual and EMC, it also acquired portfolios of mortgages that included option adjustable-rate mortgages. Also known as pay-option, or pick-a-payment mortgages, those loans allow customers to choose from multiple payment options, including paying less than the interest due, which in turn increases the balance of the loans.

JPMorgan, which did not originate option ARMs, said modifications for those loans would eliminate the option to pay less than the outstanding interest.

[tejasdemo]

Awwwwwwww...that sure is sweet of them, aint it ?

[amazedd]

Thanx!

[kiwi_chick]

It appears that most of the house foreclosures came when the 2/28''s came due. Now, a thinking person (bean counter who holds the note) would surmise that it would probably be best to adjust the mortgage rate to one that the homeowner could afford, BEFORE bankruptcy or foreclosure became the reality. How many bean counters do you think took that avenue? Anybody care to hazard a guess?

[kiwi_chick]

You talking heads need to get a grip and understand what led to the downfall of these companies. It was NOT solely the sub-prime lending mess. Do some research. The sub-prime loan fiasco involved not just the lower middle class trying to obtain mortgages that were out of their reach, it also involved the upper middle class doing the same thing. The motif in the sub prime loans were the people who obtained loans for homeowners, knowing full well that they would NEVER qualify for a traditional mortgage. Now, the sub-prime lenders have collected their rather hefty fees and disappeared. I rather think that these greedy people are of the republican persuasion because they would have received HUGE tax savings on the fees they collected. HUGE. At the peak of the sub-prime mess, 2006, there was approximately 13.5% of delinquencies of 60 days or more late, compared with 5% in 2001.. Sub-primes have been around for a long long time. Ask yourself what the hell happened in between? It''s pretty obvious and I''m not going to get into the whole shebang here, but look at the Bush policies. Look at the no-bid contracts in Iraq. Look at the bills for no service in Iraq. Look at the golden handshakes paid out over and over again. It is hardly just a case of the lower middle class pursuing what they have always been told is theirs to pursue. A big part of it is the Republican tenet "I got mine, now I''m gonna get yours."

[credibility2]

Any bailout for mortgage holders will only include those who allowed themselves to be either duped into a subprime ARM mortgage, or who weren''t entitled to a mortgage in the first place. The bailout will not help any mortgage holders who have been paying on time, did the right thing, and then had financial failings, like losing a job. The banks don''t really care about the majority of people who didn''t get the subprime high ARM mortgages and who might only now find themselves in a difficult situation. The aim of the bailout is just to help the numeric minority of mortgages, not the numeric majority of mortgages.

[xnorton]

I''ve read so many articles on this subject, and all of them have posts from other readers griping about irresponsible borrowers, how they deserve it, why should we help, blah, blah, blah. I''m a financially responsible person who purchased an affordable house with a mortgage payment inside my income range four years ago. Since then my job of sixteen years was lost when this lousy economy put the company I worked for out of business. Yeah, we''re struggling and getting behind. We could use some help so my family isn''t dumped out onto the street. Since our govornment is partly responsible for the state of the economy and the lack of jobs I do believe that they should do something. If you''re doing ok, good for you. But the next time you read about the hardships of others please try to simply feel lucky and thankful and not post whiny comments because maybe next time YOU''LL be the one who needs help.

[dbor77]

Yeah Right, hahaha lmao...your joking right? They have already helped them enough wouldn''t you say? They took a house worth 50g''s and jacked the price up to 150g''s. Gave a mortgage to someone they knew couldn''t afford it but got them "locked in" to the deal. Now they want to help the homeowner, how? LOL

[ricklf1]

Why did govermnent tinker with a free market system in the first place? It would be bad at first, if the whole commercial and residential real estate market collapsed, but when the dust settled the country could start over again and we would be stronger.

Bail-outs are like giving pain-killer for an abcessed tooth. It feels better, however the problem is still there and festering!

[variant_530]

rharrin1 - You are the idiot if you think that a person who signed a loan doc should have any leeway what so ever to reduce their loan amount. What about those of us that work for a living AND pay what we owe. Do you think your beloved Obama will help us? Hell no, we are his bread and butter to take care of the deadbeats that bought beyond their means.

[hbevis]

nlada at 12:17 AM : Nov 02, 2008

I am retired and I pray that you find a way to survive this mess that we are in..