JPMorgan Expanding Mortgage-Modification Program

By: AP
By: AP

NEW YORK – 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.

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.

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.


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