"Chase Steps Up Mod Efforts, Again
Posted By KELLY CURRAN
January 16, 2009 1:17 pm
“Building on our modification efforts for Chase-owned loans, we have reviewed closely the terms of our investor agreements and have worked with investors, trustees, government officials and other interested parties to fashion an approach to foreclosure prevention efforts that will work for investors and homeowners,” said Charles W. Scharf, CEO for Retail Financial Services at Chase.
Chase said it will continue to seek investor approval in the small number of situations where investor agreements contain specific terms that may limit modification actions Chase can take.
It was on Oct. 31 that Chase first launched an aggressive loan modification plan, while also enacting a foreclosure moratorium, in an effort to buy time and qualify existing troubled borrowers for the program. The mod plan at the time, however, only applied to owner-occupied properties with mortgages owned by Chase, WaMu or EMC — or those instances where JPM could obtain investor approval.
Under the now-revitalized loan mod program, Chase “believes it can legally modify the vast majority of mortgages owned by investors…” according to a statement, and intends to make modifications where appropriate. The company said it now has in place the people, programs and tools to help even more borrowers stay in their homes.
As for Chases progress in modifying loans thus far, since its October announcement, Chase reported it has implemented a “more attractive” package of modifications for delinquent borrowers, implemented an independent review process to ensure each eligible borrower was contacted and offered modification prior to foreclosure, and added 300 new loan counselors around the nation.
The program has delayed the initiation of foreclosure on over $22 billion of Chase-owned mortgages of over 80,000 homeowners, giving Chase time to review those mortgages for possible modifications under the program — although, for some borrowers, it has essentially delayed the inevitable, as everyone isn’t eligible for modification.
Chase has also worked with Fannie Mae ([3] FNM: 0.67 +1.52%) and Freddie Mac ([4] FRE: 0.70 +1.45%) to implement their new Streamlined Modification Program for borrowers at least 90 days delinquent – yet, another example of the group effort — whether right or wrong, helpful or hurtful — to keep people in their homes amid a foreclosure frenzy like no other.
“When homes are foreclosed, everybody suffers, so working aggressively to modify all loans -whether owned by Chase or owned by others - on terms that should work for the borrower, makes good sense for everyone,” Scharf said. “Our experience at Chase has shown that when mortgages are properly modified, using income verification and other appropriate criteria, they perform very well over time.”
Write to Kelly Curran at [5] kelly.curran@housingwire.com
Disclosure: The authors held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade."
"Could it be that the free market still works? Part II
In October, JP Morgan Chase said that it would start more aggressively changing the terms of home loans in order to try to prevent foreclosures. At the time, I wondered if this might be taken as a sign that the free market still works—that federal programs forcing servicers to rewrite mortgages in order to keep them affordable might not be as necessary as we think.
The problem, though, with that October announcement was that it only applied to loans Chase holds on its own books—a mere 20% of what it services. All those loans tied up in investor-owned securitizations weren't eligible.
Until now. Today Chase announced that it is extending its program to the $1.1 trillion worth of home loans it servicers on behalf of investors. So let me restate my hopeful position that there still might be free-market solutions to the housing crisis, and that the government won't have to step in as much as I sometimes think it will.
To gauge how justified that hopefulness is, I called up Chase and asked why it didn't do this in the first place, back in October. The answer: it took a few months to read through every single servicing agreement to determine what the company was allowed to do by way of modification, and to build technology to evaluate whether an individual loan would be more valuable to an investor at a reduced value or in foreclosure. (Foreclosure is such an expensive process that in most cases it's worth saving the loan, even with reduced payments( TRUE ).)
So I'm still hopeful. There's still one more step, though. The vast majority of the servicing agreements Chase went through allow it to go in and make modifications, as long as they produce more value for investors—but there are some agreements that specifically restrict modifications. This is where that new law we were talking about yesterday would come in handy.
The other piece of information I still don't have is what, exactly, Chase is doing when it modifies loans. I am assured that most modifications reduce monthly payments (historically, this hasn't necessarily been the case), and that the tools used include a mix of lowering interest rate, extended the length of the loan, and temporarily reducing principal balance. I keep asking Chase how that breakdown takes shape, but so far they won't tell me. As I've argued before, this is very important information to have in order to start to understand how to craft modifications with the most long-term success.
Barbara!"
Now Robert Reich:"Why Citi Turned Around on Mortgage "Cramdowns"
The latest data show one out of ten homeowners in the United States is either late in making a mortgage payment or in such serious arrears as to risk foreclosure. Last week, congressional Dems breathed a sigh of relief when Citigroup dropped its opposition to a proposed change in the bankruptcy laws allowing distressed homeowners to do what owners of commercial property and second homes can already do when they can't pay up -- use bankruptcy proceedings as a means of working out better deals. (It's called a "cramdown." The practical effect wouldn't be hundreds of thousands of bankruptcy judges striking new deals, as conservative lawmakers predict; the mere option of going into bankruptcy would give homeowners more bargaining leverage with mortgage lenders in striking better deals.)
As long as Citigroup opposed this measure, it didn't stand a chance. Citi's clout in Washington is legendary. But on January 8, Citigroup's CEO, Vikram Pandit released a statement saying that Citi "believes it will serve as an additional tool to the extensive home retention programs currently in place to help at-risk borrowers." The announcement was greeted with kudos by House and Senate Dems. The bankruptcy provision is now moving, and is likely to be attached to the stimulus bill.
What happened? Until last Thursday, Citi had been a leader of the Bankruptcy Coalition of the Financial Services Roundtable, an industry group that had staunchly opposed the bill -- along with Bank of America, JP Morgan Chase( SEE ABOVE ), and Wells Fargo.
Could it be that Citi's Pandit knew last week that he'd soon need even more help from Congress than the $45 billion bailout the bank already received? Shares of Citigroup had seemed to regain their footing after the bailout. But then, this Monday, all hell broke loose. Citi shares plunged 17 percent, as investors got word of a deal Citi was cooking to sell its valuable Smith Barney brokerage unit to Morgan Stanley. The drop in Citi shares brought the stock back to the lowest level since the government gave Citi its first dollop of bailout funds last November. Citi is losing capital at an astounding rate -- nearly $100 million a day in the fourth quarter alone. Today the firm posted a loss of $8.29 billion for the fourth quarter, completing its worst year in history.
Citi has already got the sweetest bailout deal of any big bank, but the probability seems high that it will want more bailout money. This is the easiest explanation for Pandit's turnaround on the cramdown legislation -- something the Democratic Congress and distressed homeowners very much want.
In other words, the Wall Street bailout has had exactly the same effect for Congress that the proposed bankruptcy provision would have for homeowners -- it has increased its bargaining power over those who ordinarily pull the strings. The massive tax-payer financed bailout of Wall Street, largely a product of Wall Street's power in Washington, seems to be weakening the Street's ability to veto financial legislation it doesn't like. I'm not sure whether this is something we should be celebrating as a small victory for democracy, or condemning as an extortionate price for reducing Wall Street's grip."
I think that Reich is closer to the truth. However, I believe that is has to do with the fact that the government has yet to agree to buy these mortgages at a good price. Whatever will happen now, these mortgages will not be bought at a good price by the government. Consequently, the owners of these mortgages are resigned to the fact that they will have to get the best deal that they can on their own. Cramdowns are really no more than an acceptance of loss on principal by these mortgage owners, something that is still preferable in most cases to foreclosure.
As well, loan modifications are also preferable to foreclosures in most cases. They offer the chance of stabilizing home prices in the short run, and moving to foreclosure, if necessary, in the future, when home prices have stabilized or slightly increased from the market bottom. Given the chance, however, I have no doubt that these mortgage holders would have preferred government intervention that would have gone some way towards making them whole. That's our system. Call it free market if you'd like.
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