How JPMorgan Chase Worsens the Foreclosure Crisis

We've long known that banks are flouting a federal mandate to help financially struggling homeowners by modifying their mortgages. We also know why -- it doesn't pay.

Paul Kiel at ProPublica now fleshes out exactly how mortgage issuers are getting around the rules laid out in the Home Affordable Mortgage Program. In short, by ignoring them. Or making up their own rules. Lying appears to be another tactic.

The story centers on a Chicago mortgage broker, one Nathan Reynolds, who initially was approved for a trial loan modification under HAMP by his bank, JPMorgan Chase (JPM). But the company ultimately refused to permanently modify Reynolds's mortgage.

The reason? A Chase employee explained to Reynolds that they'd determined his financial difficulties weren't permanent. In his application, he'd written that he believed that the government's rescue efforts would "save the U.S. housing market" and that his business "will once again be profitable." The Chase employee told him that statement indicated his hardship was only temporary.
A Chase spokeswoman also told ProPublica that Reynolds had been rejected for loan modification "because the skill and ability is still there to earn the income." As Kiel notes, however, that violates federal guidance on HAMP stating that it doesn't matter whether a person's financial problems are short- or long-term. The spokeswoman also said Reynolds didn't qualify for the program because his income hadn't decreased, which defies belief given that his mortgage business fell by more than 50 percent in 2009.

An isolated incident? The flack's response suggests not. It suggests a policy of deliberately ignoring the HAMP guidelines to shut people out of a program for which they qualify.

That doesn't square with JPMorgan Chase CEO Jamie Dimon's contentions, speaking Wednesday before the Financial Crisis Inquiry Commission, that the company is "doing everything we can to help families meet their mortgage obligations."

Out of the 600,000 Chase borrowers who were offered trial loan modifications last year through HAMP and the company's own programs, less than 15 percent were approved for a permanent change in terms.

The figures are even more dire looking strictly at HAMP. Only some 7,100 Chase mortgage holders have received permanent modifications out of more than 156,000 trials started under the program, or less than 5 percent (see chart below for modification data by mortgage servicer). How are the other 95 percent faring, I wonder? Presumably worse than JPMorgan Chase, which today announced fouth-quarter profits of $3.3 billion.

HAMP's overall numbers also underscore banks' blanket resistance to changing mortgages. According to a November report from the Treasury Department, just over 31,000 out of 1 million homeowners who were offered trial modifications received permanent alterations. As public policy, it's laughable.

Such recalcitrance on the part of banks in turn feeds the foreclosure epidemic in this country. One in four mortgages in the U.S. is underwater, according to The Center for Responsible Lending. The group projects that 13 million home foreclosures may occur by 2014.

It's important to understand that the damage is not quarantined to people who lose their homes. If you live in a neighborhood where homes are in foreclosure, that hurts your property value. A rash of foreclosures also reduces tax revenue for communities, while raising costs for police, garbage removal and other municipal services. Foreclosure makes everyone poorer.

I hear from financial industry professionals who complain that they're being scapegoated by a public, and a media, eager to find culprits for the current mess. Perhaps. Fairness is a relative conceit. But stories like those of Nathan Reynolds -- stories which appear not only to be commonplace, but also a direct consequence of banking company policy -- don't help.