The big bank ramps up a program to modify terms for 400,000 homeowners and kills a highly criticized type of mortgage

By Christopher Palmeri

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In what may the biggest sign yet that banks are getting serious about attacking the nationwide wave of abiding-place foreclosures, giant JPMorgan Chase (JPM) announced on Oct. 31 that it is sharply ramping up its efforts to restructure the loans in its massive mortgage portfolio. For the next 90 days, JPMorgan will not place some new homes into foreclosure.

The banking behemoth, which acquired troubled lender Washington Mutual on Sept. 25, says it hopes to modify terms for the sake of 400,000 homeowners, accounting for $70 billion in loans. Among the steps it is taking: eliminating toxic "pay option" loans, offering strange loan terms to homeowners preceding they neglect, and hiring an additional 300 loan counselors to bring the company’sitting whole to 2,500. "While Chase has helped many families before that time, we feel it is our accountableness to provide additional help to homeowners during these challenging state of things," said Charlie Scharf, head of Chase’session retail financial services, in a prepared statement.

The JPMorgan Chase announcement comes as the U.S. bailout strategy seems to be shifting from the at the beginning approach of having the Treasury Dept. bribe $700 billion worth of troubled pledge assets from lenders, to investing directly in big banks to spur more loans (BusinessWeek, 10/29/08), and at that time toward a coordinated straining to restructure loan conditions for individual borrowers. Federal Deposit Insurance Corp. Chairman Shelia Bair has been pushing to have the federal regulation take a more active roll in loan restructurings (BusinessWeek.com, 10/30/08). The effort could have existence modeled in the pattern of the fast-track mortgage modification program the FDIC put in place posterior taking over failed IndyMac shore in July.

The banking and pledge industries have been criticized for not doing enough to obstruct foreclosures and to modify the terms of troubled loans. According to the most newly come facts compiled by the Hope Now Alliance of lenders, counselers, and other industry players, lenders started the foreclosure process on 565,000 homeowners in this year’s third divide in four equal parts. Some 265,000 homes were actually foreclosed on, nearly twice the equal in number from the third quarter of 2007. Moreover, more than 2.2 million homeowners are more than 60 days delinquent in their mortgage payments, also a near doubling from last year.

The Hope Now Alliance was put together to keep borrowers in their homes. However, while Hope Now says it reached lend modification terms with 593,000 borrowers in this year’s third quarter, only 265,000 really had the terms of their loans changed. The rest merely entered into payment plans, typically in what place the bank agrees to be repaid past-due payments and recent fees from one to another time. Mortgage industry critics say borrowers aren’t really out of danger unless the interest rates or principal is reduced, dark monthly payments.

With IndyMac, the FDIC is reducing interest rates (BusinessWeek, 10/8/08), typically for five years, in an effort to keep borrowers’ payments to no more than 34% of their monthly income.

JPMorgan Chase says it’s reviewing its entire portfolio to induce which homeowners may be in badger. The body says it will eliminate pay-option ARMs, a controversial type of adjustable-rate mortgage that allowed borrowers to defer part of their monthly payments, rolling the wrangle onto the great they owed. Borrowers were often enticed to take such loans by the agency of the reduce payments but now catch themselves consequential unruffled more on their dwellings, even as home values have slid. A recent study by research firm First American CoreLogic found nearly one in five borrowers in the U.S. owes more on a place of abode than it is worth.

New York City-based JPMorgan Chase in addition says it will proactively contact borrowers with prequalified offers to reduce their sympathy rates or lend principals and fix 24 new regional counseling centers to provide face-to-face help in markets with high delinquency rates. Many borrowers in trouble say it is herculean to reach lenders when they want to renegotiate loans. Many often feel they have to stop making payments to get a bank’s politeness.

On Oct. 6, Bank of America (BAC) announced a settlement with attorneys general officer in 11 states that involved an aggressive loan form program involving 400,000 borrowers and $8.4 billion in interest value reductions. Bank of America’s Countrywide division had been accused by state officials of putting borrowers into loans they couldn’t afford during the boom just so it could resell those loans to Wall Street at a fat profit. Bank of America acquired Countrywide in July.